Bitcoin Dominance Reaches New Heights

BTC dominance over the crypto market surpassed levels not seen in one year, as XRP impending lawsuit, rising institutional investor interest in Bitcoin and US relief bill all contribute to BTC's rise.

The Bitcoin dominance over the crypto market just set a new high and surpassed 70%, which is the highest point since January 13, 2020, over 11 months ago. But we have to go all the way back to March 2017, nearly 3 years ago, when the 71% level of BTC dominance was last witnessed in crypto.

What is Bitcoin Dominance?

BTC dominance is a metric used to indicate how much of the total market cap of all cryptocurrencies is currently held in Bitcoin. It is a great indicator to understand BTC’s value in relation to the broader crypto market.

When BTC dominance is high, altcoins are often devalued. When BTC dominance is at lower, altcoins usually have ground to flourish and increase in value and market cap.

One major reason for the spike in Bitcoin dominance was likely the XRP sell off following the SEC’s impending lawsuit against Ripple over alleged sale of $1.3 billion of XRP.

XRP has lost 42% of its value in the past 24 hours alone, and most of these funds have moved into Bitcoin. But the uptrend in BTC dominance started in September 2020, when it was as low as 57%, so the recent XRP event is only pushing BTC dominance higher, and is not in any way the catalyst for BTC dominance reaching these levels.

Bitcoin Dominance passed 69,7% on December 23, reaching its highest point since January 13, 2020. Source: Tradingview.

Institutional Bitcoin Investors

Instead, the unabated flocking of institutional investors and crypto hedge funds into Bitcoin is the major force behind the recent surge in Bitcoin dominance. Michael Saylor of Microstrategy is essentially announcing a new BTC purchase by his company on a near weekly basis. Saylor is calling on everyone from Elon Musk and the likes to ditch USD reserves and instead use BTC as a store of value and a hedge against rising US dollar inflation.

Meanwhile, Greyscale added on December 22 alone over 12,319 BTC to the Grayscale Bitcoin Trust (GBTC). In one single day. This amount is more than the company’s accumulated Bitcoin purchases over the entire last seven days, and amounts to around $287 million.

Microstrategy and Greyscale are only two players, however prominent, in the drove of new institutional investors entering into Bitcoin over the second half of 2020. The clear result of the move by institutional money is a supply crunch of BTC available on exchanges, naturally pushing the price higher.

US Relief Package

Adding to this supply crunch and scarcity of BTC is the recently passed Corona Relief Bill by US Congress. It currently includes $908 billion in funding, provided by the magical expansion of the US Federal Reserves balance sheet, including a $600 to American citizens earning under $75,000 annually. After the bill passed Congress, outgoing President Trump vetoed the bill, pushing for $2,000 to Americans instead of $600. Interestingly, Democratic Speaker of the House Nancy Pelosi supported the move, and it is estimated that a potential revised bill with $2,000 as individual payments would increase the total relief package to $1.24 trillion.

Overall, the likely passing of the relief bill in the coming days will further cement the US dollar’s growing inflation and decreasing purchasing power. As The Fed is increasing the USD balance sheet, Bitcoin is looking a lot more attractive by the day for major players to enter into as a protection against uncontrolled inflation. This of course indicates that BTC inflow will likely continue to rise, giving additional fuel to the Bitcoin dominance to take more market shares in the crypto space.

History Doesn’t Repeat Itself, But It Does Rhyme

But, this is a long game, and just as after rain comes sunshine, and after BTC dominance comes altseason. So at least history tells us. Although history doesn’t repeat itself, it usually rhymes.

Misha Lederman

Director of Communications and Marketing at klever.io

* This article is not financial advice.

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