Bitcoin Dominance Hits 174-Week High Amid Market Meltdown

• Crypto markets crashed over the weekend, erasing hundreds of billions in value.
• Bitcoin dominance records a new yearly high during the market chaos. 
• Observers cite various reasons for the crypto crash, including the Bank of Japan‘s hawkish shift.

Bitcoin dominance is a key cryptocurrency metric that refers to BTC’s market cap relative to the entire crypto ecosystem. This indicator often serves as a barometer for investor sentiment, with higher dominance typically suggesting a shift towards perceived safety in the volatile digital asset space.

Over the past 24 hours, the crypto market has seen a significant downturn , losing $360 billion in total asset valuations. This sharp decline has rattled investors and led to a notable surge in Bitcoin dominance, which has spiked to a new high for 2024.

Investors Flock to Bitcoin 

The weekend crypto market downturn has propelled Bitcoin dominance to new heights. On Monday, Bitcoin’s market share climbed to 57.25%, marking a 174-week high not seen since April 2021. 

Bitcoin dominance over the past three years, per Trading View

Examining the longer-term trend, Bitcoin’s dominance has been upward since September 2022 after sinking to a 339-week low of 38.82%. Since then, Bitcoin’s market share has steadily climbed, forming a clear pattern of higher highs and higher lows. This consistent growth has culminated in the current dominance level of 57.25%.

Historically, Bitcoin dominance fluctuates due to shifting investor sentiment and risk appetite in the cryptocurrency market. When investors become more risk-averse, they tend to favor Bitcoin over altcoins, boosting its dominance. Conversely, altcoins often gain market share during periods of increased risk tolerance.

However, the current two-year uptrend in Bitcoin dominance, while relatively narrow compared to past cycles, represents an unusual pattern compared to past cycles.

This sustained increase in Bitcoin dominance suggests a persistent investor preference for Bitcoin since September 2022, shortly before the FTX collapse . This trend has continued even during periods of altcoin strength, suggesting that the FTX collapse has tarnished altcoins to a degree. The weekend sell-off has reinforced this trend.

With fear dominating market sentiment following the sell-off, attention has turned to the factors that caused it.

What Caused the Crypto Crash?

As crypto market sentiment plummets, many observers point to the Bank of Japan’s (BoJ) recent shift in monetary policy. On July 31, the BoJ raised interest rates from 0.1% to 0.25% , marking only the second rate increase in 17 years.

This move signifies a decisive end to the BoJ’s long-standing stimulus policy, which had involved maintaining zero percent interest rates and engaging in bond purchases to support the domestic economy.

A key consequence of this policy shift has been the unwinding of the yen carry trade, which involves traders borrowing yen at zero interest rates to invest in higher-yielding foreign assets, including cryptocurrencies. 

As interest rates rise, this trade has become less profitable, leading many traders to liquidate their foreign-held assets and repay their yen-denominated loans. This mass sell-off has significantly impacted both stock and cryptocurrency markets.

Other factors have also influenced investor sentiment. Escalating tensions in the Middle East have heightened market uncertainty. At the same time, recent speculation about the upcoming U.S. presidential election, particularly Kamala Harris pulling ahead of Donald Trump according to one poll, has added to the bearish market dynamics.

On the Flipside

• The weekend crypto crash challenges the narrative that Bitcoin is a store of value.
• The total crypto market cap has grown significantly since 2023, meaning Bitcoin‘s absolute value has increased more than relative dominance changes reflect.
• Tron fared relatively well during the weekend sell-off, enabling it to leapfrog Avalanche to become the 11th-largest project by market cap.

Why This Matters

In the aftermath of FTX’s collapse, Bitcoin’s surging dominance reflects a lingering distrust of altcoins among investors. This sentiment was further reinforced during the recent weekend sell-off, as market participants once again flocked to Bitcoin as a relatively safe haven amid market turmoil.

Bitcoin sell-off blamed on Bank of Japan interest rate hike:
Bitcoin Plunges Below $60K as Japan’s Rate Hike Rattles Global Markets

Max Maher gives his take on Cardano’s poor price action in 2024:
Why Cardano Hasn’t Pumped in 2024 & How to Fix It: Max Maher