Bitcoin Dominance During the Last Bull Run

The concept of “Bitcoin dominance” (BTCD) refers to Bitcoin’s market capitalization as a percentage of the total cryptocurrency market capitalization. During the last major bull run, broadly understood to be the period encompassing 2020 and 2021, Bitcoin’s dominance experienced a significant and characteristic ebb and flow.

Initially, as the bull market began to take hold, Bitcoin dominance was already relatively high. At the start of 2020, BTCD hovered around 70%. This reflected Bitcoin’s established position as the original and most recognized cryptocurrency, commanding the lion’s share of institutional interest and acting as the primary gateway for new investors entering the crypto space. Early institutional adoption, driven by companies like MicroStrategy and Tesla, predominantly flowed into Bitcoin, reinforcing its dominance.

However, as the bull market matured, Bitcoin’s dominance began a noticeable decline. This decline can be attributed to several factors. First, the rise of decentralized finance (DeFi) on the Ethereum blockchain attracted substantial capital and developer activity, pushing Ethereum’s market capitalization significantly upwards. Second, the emergence and proliferation of alternative layer-one blockchains, like Solana, Cardano, and Avalanche, each promising faster transaction speeds and lower fees than Bitcoin and Ethereum, diverted investment away from Bitcoin.

Furthermore, the meme coin frenzy, particularly in the spring of 2021, drew a massive influx of retail investors looking for quick profits, often fueled by social media hype and influencer endorsements. These meme coins, typically traded on smaller exchanges and often running on alternative blockchains, diverted capital from Bitcoin into speculative altcoins. This rapid influx into altcoins, coupled with gains in established players like Ethereum, rapidly eroded Bitcoin’s dominance.

By mid-2021, Bitcoin dominance had plummeted to below 40%, indicating a significant shift in the market landscape. This level signaled a so-called “alt season,” where alternative cryptocurrencies outperformed Bitcoin in terms of price appreciation. While Bitcoin continued to rise in price during this period, the growth of the altcoin market outpaced it, resulting in a relative decline in Bitcoin’s overall share.

Despite this decline, Bitcoin maintained its importance. It continued to be seen as the store of value, the digital gold, and a safe haven within the volatile crypto market. Corrections and periods of uncertainty typically saw capital flowing back into Bitcoin, resulting in temporary bumps in its dominance. These fluctuations highlight the inherent volatility of the crypto market and the constant tension between Bitcoin’s established role and the allure of newer, potentially more rewarding, altcoins. Ultimately, understanding the dynamics of Bitcoin dominance provides valuable insights into the overall health and sentiment of the cryptocurrency market.