The cryptocurrency winter of 2022 has not provided altcoin supporters with much joy. The relentless decline in Bitcoin (BTC) price led to even more severe losses across the broader crypto market. However, after the recent market recovery of early 2023, Bitcoin dominance (BTCD) has reached a key level that could affect the future fate of altcoins.
Bitcoin dominance measures the market capitalization of Bitcoin relative to the total market capitalization of other cryptocurrencies (altcoins). If the BTCD is rising, it means that the BTC share of the cryptocurrency market is increasing. If it is falling, the importance of the largest cryptocurrency is decreasing.
Bitcoin dominance can increase in two ways. First, the price of BTC can soar faster than other altcoins. Such a situation often occurs during a rapid recovery in the cryptocurrency market, when large capital flows first into Bitcoin.
Secondly, the BTC price may decrease slower than altcoin prices. This often happens during a long-term bear market, when riskier altcoins experience much greater capital outflows than relatively stable Bitcoin.
If, on the other hand, Bitcoin dominance is declining, it means that Bitcoin is growing more slowly than its younger brothers. It is also theoretically possible that the price of BTC drops and the altcoin market rises. However, this happens very rarely and usually involves individual altcoins.
Bitcoin Dominance (BTCD) Attempts to Break Through 44.50%
On the weekly chart of BTCD, we see a long-term parallel channel that dates back to May 2021. At that time, the sharp decline in Bitcoin dominance led to the famous altcoin season, during which most of the leading altcoins set their all-time highs (ATH) paired to BTC.
Since then, Bitcoin dominance has respected resistance in the 48-49% range (red circles) and support in the 38.50-39.50% range (blue circles). Meanwhile, two other key levels have emerged in 2022: support at 41.50% and resistance at 44.50%. The latter was recently reached on the back of Bitcoin rapid appreciation since the beginning of 2023
The daily chart confirms the readings from the weekly time frame. Since the beginning of February, Bitcoin dominance has been undergoing a short-term correction, which led to the 43% level. It coincides with the 0.382 Fib retracement level, measuring for the upward movement initiated at the beginning of the year.
The shallow correction suggests that the BTCD upward trend may continue, and the indicator is ready to break through the 44.50% level. Moreover, the daily RSI has not yet generated a bearish divergence. This suggests that the upward move remains strong and the trend can be expected to continue.
When Altcoin Season?
If Bitcoin dominance realizes the bullish scenario and breaks out above the resistance at 44.50%, we will still have to wait for altcoin season. Perhaps it will appear only after the end of the upward impulse of BTC price and after a bearish retest of the 48% area by BTCD.
This interpretation seems to be favored by the Altcoin Season Index by Blockchaincenter. The index clearly shows that we experienced a minor Bitcoin season in early 2023, as it dropped below 25.
Currently, the index is back in the neutral area and gives a reading of 43. If it is rejected from this area – as it was in May 2022 –the Bitcoin season will continue. If, on the other hand, it continues its upward trajectory, the long-awaited altcoin season can be expected in a few weeks or months.
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