An analyst recently claimed in a post on CryptoQuant that Bitcoin price increases have historically signalled the beginning of long-lasting market shifts. For each cryptocurrency, the “trading dominance” indicator determines how much of the total trading volume that coin represents.
When the value of this metric increases for any coin, it indicates that the volume share of that particular coin is increasing. This rise in volume share is evidence that investors are demonstrating a greater interest in trading that coin. On the other hand, a diminishing share of the market indicates that the coin’s popularity is waning because fewer of its holders are trading it compared to other assets on the market.
Historically, Bitcoin and Ethereum have maintained a combined dominance that is consistently higher than 50%, which has allowed them to control the majority of the market volume. On the other hand, there have been times when altcoins other than ETH have completely changed the trajectory of the market.
What Does This Mean for Bitcoin (BTC)?
It would appear that in most cases, when these other cryptocurrencies have filled the majority of the trading volume, the price of Bitcoin has followed suit by experiencing some kind of decrease. The research believes that when investors start trading altcoins rather than Bitcoin (BTC), the dominance of altcoins begins to increase over this point. The prices of these coins are highly volatile and susceptible to manipulation because, in general, they pose a bigger risk than BTC.
Price movements that originate with altcoins are, therefore, prone to inconsistency because of this factor. In some extreme instances, the quant cites the ICO bubble of 2018, the bull run in the second half of 2021, and the ETH merging. On the other hand, swings in which Bitcoin has rallied first and Ethereum/alternative cryptocurrencies have followed have been more healthy and sustainable than previous moves.
If the prior instances of altcoin dominance jumping above 50% are any indication, Bitcoin may be on the verge of experiencing a drop shortly. On the other hand, this is not a given because a few isolated spikes have occurred over this level in the past. Still, they have never ended up having any discernible repercussions on the market. Also, even if there is a decline, the severity of it could not be as severe as in some of the earlier examples.
What are your views on this?
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