As the crypto market rallies, bitcoin dominance continues to rise

Bitcoin's price has been rising in tandem with other altcoins. This led to speculation that the markets would flip back to a bullish Supercycle for Bitcoin (BTC). The resistance levels of $42,000 were broken by the flagship cryptocurrency Bitcoin, reaching a peak of $42,541 July 31.

The Bitcoin dominance (BTCD), index, has also been experiencing an uptrend. According to TradingView data, BTCD reached a three-month high of 49.2% in July according to TradingView. It was last at these levels in May, when it was still below the January yearly high of 73.26%.

The BTCD Index is calculated by comparing the Bitcoin market to the rest of cryptocurrency market. The BTCD index is named after the most prominent crypto asset. It indicates how dominant Bitcoin is over other cryptocurrency tokens.

Cointelegraph spoke with Pete Humiston, Kraken Intelligence manager, about the market rally being led Bitcoin. He stated that altcoins have felt the brunt the sell-off in the past few months, and because BTC is crypto’s'safehaven' asset, so a rally in control indicates that market participants are hesitant to return to altcoins.

Noting that the BTCD index reached these levels last year, it was still on the way to a low in January during the bull market. It is now on an uptrend, having rebounded from its mid-May lows. Back in May, altcoins like Ethereum (ETH) were outperforming BTC which led to the dominance dropping below 40%. However, BTC has made gradual price gains this time that not all altcoins can match, leading to a rising BTC dominance.

A bull market may not cause BTCD to rise further

The market capitalization is significantly higher than other crypto assets. Keeping stablecoins aside however, Bitcoin is the most traded crypto-token over a 24-hour period. Ethereum comes in close second. Stablecoins can also impact Bitcoin dominance due to large influxes in the market. This was evident in April, when the Bitcoin dominance fell to its lowest level since August 2018, thanks to a $3 billion USD Coin (USDC).

Humiston also spoke about the market conditions needed to sustain the current uptrend in the index. He stated that "Until it is clear as day that the bull market uptrend is returning, we can expect folks remain relatively risk-averse and altcoins will underperform, while BTC dominance will trend higher."

JPMorgan's global market strategist, Nikolaos Panigirtzoglou, recently mentioned in an interview with CNBC that if the Bitcoin dominance goes past 50%, it could be an indicator of whether the "bear phase is over or not" for the cryptocurrency markets. As we can see in the bull run that began in 2018 and in 2020, the BTC dominance rises in recovery phases and falls during euphoric periods. This period of euphoria usually ends in a correction that then repeats the cycle.

It's also worth noting that BTCD can be used to measure market sentiment when viewed in percentage terms. However, it is often not the most reliable indicator. It is likely that as the cryptocurrency markets mature, some altcoins will be more resilient to crashes. This will lead to a decrease in Bitcoin dominance.

A report from Stack Funds was released in May after BTC dominance dropped to nearly 40%, revealing that the index could bounce back and mark the end of the market slump. Cointelegraph was told by Shaun Heng (Vice President of Growth and Operations at CoinMarketCap), a cryptocurrency ranking platform and analytics platform.

"Bitcoin is volatile but I believe it will continue to dominate the market for some time." Bitcoin is the foundation for all other cryptocurrency. While I don't believe it will reach the same heights as it did in the past I don't see it falling off significantly in the near future.

Bitcoin is often considered the safe-haven cryptocurrency asset. However, Bitcoin's "sentiment recovery", which is what Bitcoin is currently experiencing, saw it recover some of its gains from the beginning of the summer. ETH has gained 12.1% in the past seven days compared to Bitcoin's 3.30%.

Flipping Bitcoin Ethereum

Recent news from Pantera Capital was that Dan Morehead, CEO, stated that Ether will outperform Bitcoin by converting Ethereum to Ethereum 2.0 (Eth2) network. The Ethereum network will soon undergo a major update, in addition to ETH's recent price rise. In a benchmark event toward the migration of the blockchain to an entirely proof-of-stake network, on August 4, the highly anticipated London hard fork takes place which adds five Ethereum Improvement Proposals (EIPs), including the EIP-1559.

This new mechanism for transaction pricing alters the dynamic expansion/contraction of block sizes to increase scalability. This will change how network fees are managed by rewarding miners who prioritize transactions.

Although this is a significant change for the network, and it is highly anticipated by the community, Humiston explained why this may not have an impact on the macro trend of markets anytime soon. "Because the London hard fork/EIP-1559 impact will take time to materialize, and BTC dictates how the macro trend, we don’t anticipate August 4 will incite a new alt-season."

He also said that the hard fork is a prominent event that is seen as a long-term tailwind to the token. This could lead to a case where "buy the rumor and sell the news" which would result in a short-term weakness of ETH. It is possible, however, that the hardfork could support another rally in ETH. It is important to remember that ETH might not rally based solely on the hard fork's development. BTC would have to remain above $40,000 for a rally to occur.