Will the start of the new year once again prove to be the season for altcoins? Or is the decline in Bitcoin’s dominance a threat to the market? This question is worth answering as Bitcoin reaches the lowest point of its market dominance since April 2018!
Long period of moving in a pattern, results in a breakout
We have been paying attention to Bitcoin’s dominance chart for a very long time. The descending triangle forming on it for almost a year, which in most cases announces declines, has just broken out towards the bottom. This means breaking the psychological barrier of dominance of the king of cryptocurrencies, located at the level of 40%. This event is not an anomaly, but undoubtedly rare. The All Time Low of BTC dominance, reached on January 13, 2018, is 35.41%. At the same time, there are factors that suggest the possibility of exceeding it.
Looking at the chart, we can see that the RSI indicates a divergence, suggesting a relapse of the movement. Divergence has this to itself, that it does not announce a specific time when the reversal could take place. Therefore, theoretically, there is a probability that BTC dominance will return to the border of the triangle, marked by the white line. However, more likely is its descent to lower levels and a retest of 40% as resistance. In case of further declines, it also has the right to reach a new ATL, or even go down to a level close to 30%, as this is indicated by the target resulting from the just broken formation.
Why is bitcoin’s dominance declining?
The first and undoubtedly the most important reason for Bitcoin’s declining dominance is the development of blockchain technology and the multitude of newly emerging projects. Looking at the statistics of CoinMarketCap, we see that there are already nearly 16.5 thousand of them, and every day there are more. Each of them wins a part of the global crypto cake, which is reflected in the dominance.
Another no less important aspect is the development of the Ethereum network, and at the same time the whole DeFi sector. Ethereum is the infrastructure to build more areas. The network effect here causes a dynamic increase in value. This results again in dominance, which in the case of Ether, is already close to 20%.
Moreover, Bitcoin’s price stagnation causes capital to move to smaller coins, which in the short term have the right to grow and bring profits to investors.
Thus, the conclusions are self-explanatory. The current market situation is not a threat. It is just the natural course of things, resulting from the development of technology and also part of the evolution of the cryptocurrency market. However, one has to wonder where the boundaries are.
Is bitcoin heading towards fulfilling the Pareto Principle?
Technically speaking, Bitcoin is right to go as low as 30% of its dominance. However, is this the ultimate lower limit it intends to reach? There is a lot of speculation in the space. One of the more interesting is the comparison to the Pareto Principle. This is an economic theory that applies to many areas of life, indicating a standard distribution of assets at levels of 20% to 80%. Under Pareto’s core theory, 20% of resources are responsible for 80% of profits and vice versa. The multitude of applications of Pareto is right to suggest where Bitcoin is headed in the long run. According to it, BTC, as the strongest crypto asset, can reach the level of 20% dominance, while the total capitalization of altcoins would reach as much as 80%. However, it may take quite some time before we can verify this.