Bitcoin (BTC) is regaining its lost crypto market dominance even as it trades nearly 60% below its record highs.
Bitcoin dominance at 6-month highs
The Bitcoin Market Dominance (BTC.D) index, a metric that weighs BTC’s market capitalization against the rest of the cryptocurrency market, jumped to around 47% on May 27, its highest since October 2021.
The dominance index swelled despite the drop in Bitcoin’s market cap in the last six months from $1.3 trillion in November 2021 to nearly $550 billion in May 2022, suggesting that traders were more comfortable selling altcoins.
Let’s look at three likely reasons why traders have been rotating out of the altcoin market to seek safety in Bitcoin.
Ethereum “Merge” narrative is cooling down
Ethereum’s native token Ether (ETH), the largest alternative cryptocurrency by market cap, has witnessed consistent declines in its market dominance in the last five months—from 22.38% in December 2021 to 17.86% in May 2022.
The plunge comes after two years of a sustained uptrend, with ETH/BTC rising more than 200% between September 2019 and December 2021.
As Cointelegraph reported, Ether outperformed Bitcoin in recent years, largely due to the hype surrounding its long-awaited protocol upgrade, called “the Merge,” which hopes to make Ethereum more scalable and less expensive.
But the upgrade, which aims to transition Ethereum’s blockchain from proof-of-work to proof-of-stake—a counterpart known as Beacon Chain, has faced repeated delays in its launch.
Only recently, Martin Köppelmann, the co-founder of the Ethereum Virtual Machine- (EVM)-compatible Gnosis chain, highlighted a seven-block reorganization on the Beacon Chain, meaning that the chain got briefly “forked” in its testing phase.
The Ethereum beacon chain experienced a 7-block deep reorg ~2.5h ago. This shows that the current attestation strategy of nodes should be reconsidered to hopefully result in a more stable chain! (proposals already exist) pic.twitter.com/BkQrKuUlw1
Ether dropped by nearly 13.5% against the U.S. dollar following the reveal on May 25 while ETH/BTC plunged to 0.059, the lowest in six months.
Ethereum lacks narratives to drive ETH’s price upward after undergoing the Merge upgrade, noted OxHamZ, an independent market analyst, saying that investors have already “priced in” the network upgrade hype.
What’s the narrative to own ETH after the merge?
All KPIs are down
Active wallets stagnant NFT hype dead LP trading volumes trending poorly Liquidity shrink in stables L2 cannibalization growing (h/t @TaschaLabs)
ETH is down 50% but the value of its block-space is also down
Historically, Bitcoin’s dominance drops during crypto bull markets as waves of new tokens spring up during the mania phase.
For instance, the duration of the infamous initial coin offering (ICO) pump coincided with BTC.D dropping from nearly 96% in January 2017 to 35% in January 2018.
Then the March 2020 crash was the beginning of the DeFi and nonfungible token (NFT) hype, boosted further by the Federal Reserve’s quantitative easing.
Therefore, if Bitcoin’s market dominance has indeed bottomed out, it could once again align with a macro bottom in Bitcoin price, and possibly the beginning of a new bull market phase in the coming months.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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