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Bitcoin’s recent dominance in the cryptocurrency market has fallen below 50%, indicating a potential negative trend as retail activity increases. This change raises questions about market dynamics and investor sentiment.
Bitcoin dominance has been a crucial indicator of whether the market is in a bullish or negative cycle throughout history. As Bitcoin becomes more dominant, this usually means a defensive market as investors prefer the relatively safer alternative Bitcoin Instead of alternative currencies.
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While a decline usually means that an investor is likely to increase his or her risk and often prefers to invest in altcoins for potentially higher returns.
Cryptocurrency analyst Alan Santana identified three significant warning signs for Bitcoin’s dominance in an X post on Tuesday, as retail investors resumed trading after a long period of inactivity.
#BTCdominance 🅱️ 3 Bearish Signals of Bitcoin Dominance + Fibonacci Time Calculations
I would like to show here mainly three signals that can be considered bearish on this chart, namely Bitcoin Dominance (BTC.D).
1) There is a doji on September 16th. Coming at the top of the trend… pic.twitter.com/enQAeVo5MB
– Alan Santana (@lamatrades1111) October 21, 2024
Increase in retail activity
As Bitcoin’s supremacy declines, retail investors are becoming increasingly active. Typically, this rise in retail participation comes as Bitcoin’s market share has declined since these investors turned to altcoins in search of better profits.
The current situation is reminiscent of previous cycles, during which an increase in retail interest led to a significant decline in Bitcoin dominance. For example, Bitcoin’s dominance declined significantly during the 2021 bull market as new altcoins gained traction, diverting attention away from the original cryptocurrency.
A general shift in investor mood
Market experts say this trend is not a one-time occurrence; It’s a sign of larger changes in how investors behave. With the growth of non-fungible tokens (NFTs) and decentralized finance (DeFi), altcoins are becoming more attractive.
Many investors believe that networks like Ethereum, which supports smart contracts and decentralized applications, are more flexible than Bitcoin these days. This change may be a sign of a larger shift in how people think about and use cryptocurrencies.
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Volatility trends
Bitcoin has seen a trend of fluctuations in dominance since its inception in 2009. Starting with a nearly 100% market share, it began to slowly decline as more altcoins were introduced.
Bitcoin declined decisively during the initial coin offering (ICO) boom in 2017 and the decentralized finance (DeFi) boom in 2021, at which time it fell to less than 40% dominance. Given these historical precedents, this may represent another point in which altcoins outperform Bitcoin, especially when retail interest increases.
Experts believe that this could cause cryptocurrency markets to become more volatile in the future if this continues. A decline in dominance often serves as a precursor to speculative trading, which subsequently causes the prices of both Bitcoin and altcoins to fluctuate significantly.
Bitcoin’s current level of dominance serves as a measure of general market sentiment. Many speculators are reevaluating their strategies as the decline continues.
Featured image using Dall.E, chart from TradingView