For the purposes of historical comparison, it is also worth noting that the pattern of the dominance chart currently looks very similar to what it did during the first half of 2017.
As the market has gone bearish since May 12, Bitcoin (B T c) The dominance has fluctuated dramatically, surpassing the prevailing trend of 2021. Before the sell-off began, BTC dominance fell from around 70% in January to less than 40% at the time of the crash. At the time, BTC’s dominance was at its lowest level since the summer of 2018. It has since exceeded 43%.
If the same pattern is trending this time, the market is likely to be on par with the summer of 2017, when the alt season was just booming, and still a few months away from the peak of bitcoin price of around $ 20,000 in December 2017 is.
Of course, while the patterns draw some interesting similarities, the BTC dominance does not necessarily reveal much about price. But it also provides insight into how key assets are performing in relation to the rest of the market, outlining some trends. So, what are the possible scenarios for BTC dominance, and what will it mean for the market?
follow the money flow
The money flow model is a potential predictor of where markets can go. The model states that the money goes from fiat to bitcoin and then below the large-cap, through mid-cap back into small-cap altcoins before redirecting them to BTC and, eventually, back to fiat.
This model is interesting because it largely occurred in 2017, except that this cycle doubled at the end of the year of BTC. Therefore, if the 2017 scenario repeats itself, BTC dominance could rise until the dominant asset sees another price peak, then falls as the alt season once again intensifies.
Along with the terrible similarities of the dominance chart, the behavior of the alt market also gives some indication that they may perform according to historical cycles. In early May, Cointegraph reported that altcoins had Elevated his previous chakra to support – A trick that last took place in 2017.
If the cycle repeats, it can still take the stratosphere to new heights in 2021. Although the performance seen during May may not provide much assurance in this regard, there is nothing to indicate that BTC and the broader market will not perform. According to long term trends. Sam bankman-friedCEO of exchange FTX and Alameda Research told Cointegraph:
“If we enter a long bear market, I expect BTC’s dominance to grow, as it did in 2018-2019; but the improvement we have seen so far is not enough to trigger it. “
Hold on …
For individual investors who follow the money flow, is a big consideration. Speaking to Cointegraph, Wood LLP managing partner Robert W. Wood warned: “There is an elephant tax in the room for diversification.” He said: “By 2018, many investors can claim that swapping one crypto for another was non-taxable under section 1031 of the tax code. But in late 2017 the law was changed.
Indeed, Omri Marion, director of the graduate tax program at the University of California, Irvine School of Law, confirmed that crypto-to-crypto transactions are likely to trigger tax obligations, explaining to Cointelegraph:
“Studying one crypto asset for another is a taxable event. So whatever the profit motivation is, a cryptocurrency investor must account for the fact that the rebalancing of the portfolio may incur tax costs.”
CEO of crypto tax calculator Shane Brunet put it in practical terms, telling Cointeclague: “If an investor switches between BTC and altcoin, they will realize capital gains / losses in this financial year, even if they have ‘cash out’.” ‘Whether done or not.’ To fiat. Furthermore, he clarified that “the activity will reset the period of time the investor is holding the asset which will affect the eligibility to claim the long-term capital gains exemption. “
Therefore, keep in mind that the flow of money may follow with its own set of costs, and consequently, there is no guarantee that the pattern can be repeated, as new variables may have an effect.
The most important difference between 2017 and now is the presence of institutions in the markets. At least, this is true for bitcoin and, to a lesser extent, large-cap altcoins such as ether (ETH) Large portions of the alt market, including almost all low-cap coins and dogcoins such as MemeCoin (Doge), Dominated by retail traders and investors.
Upon examining the dominance K-line chart, BTC appeared to get a boost towards the end of 2020 as institutional interest in cryptocurrency began to wane. Its dominance continued until around January.
But there is some evidence that institutions may be behind the recent promotion of BTC dominance. It was revealed on 21st May that Whale bought BTC worth $ 5.5 billion While prices were below $ 37,000; Two days later, crypto hedge funds MVPQ Capital, Bytree Asset Management and Three Arrow Capital Everyone confirmed that they were plunge buyers.
Therefore, there is a chance that bitcoin’s sudden dominance recovery may not come in regular market cycles, but may be influenced by institutional whales scooping concessional BTC.
Risk-off, but how far?
The question is, to what extent will the participation of institutions affect the pattern of dominance of BTC as compared to what was observed in 2017? Perhaps the most important difference between institutions and retail investors is that institutions are more likely to follow current market conditions and exit risk accordingly. Therefore, the dominance of BTC is increasing as investors choose to move away from risky options.
However, based on the “decline in purchases” report, it seems that there is no reason for investors to go from crypto itself to being risk-free – at least for now. Also, regardless of market turmoil in recent weeks, the bullish sentiment keeps revolving, as seen in the report that interest in BTC Looks like it’s still growing.
Therefore, there is still every possibility that if interest in BTC persists, and no big bad news comes around to destroy the sentiment around crypto, then the money flow model could still run once again is. For now, if history persists, there will be some further increase in BTC dominance, before investors once again start expanding into large-cap altcoins.