Don’t Fear the Bitcoin Dominance Reversal

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  • Bitcoin dominance has been collapsing in 2021, giving alts huge gains
  • At some point Bitcoin dominance will bottom out, which could be soon
  • A Bitcoin dominance reversal is not an instant thing, it can take weeks

The Bitcoin dominance level has been on a remarkable downtrend this year, scything through support level after support level since January 8. It currently stands at about 40.8%, just a couple of percent away from where it was at the tail end of the Bitcoin run in January 2018. But what does history tell us about the reversal process, and how should we play it?

No Need to Rush

Many people think that the moment Bitcoin dominance bottoms out it will suddenly reverse, sending Bitcoin racing into the green and leading to alts bleeding across the board. However, history has shown that this isn’t the case. As we can see in early 2018, Bitcoin dominance hit an historic low as the last throes of alt season played out, but the reversal process took over a month to play out:

bitcoin dominance 1

As we can see, Bitcoin dominance fluctuated between around 36%-40% for some five weeks before reversing, giving alts the chance to have some massive blow off tops. Anyone who had sold their alts to bitcoin at the first sign of a bounce would have missed the fireworks.

Bitcoin Dominance Likes a Rounded Bottom

The same happened in May 2018 when the market recovered briefly. Bitcoin dominance retested prior lows, taking around a week to shape a rounded bottom before taking off. Again, this gave alt holders plenty of time to exit positions before Bitcoin enjoyed a recovery:

bitcoin dominance 2

Let’s not forget too that this was when Bitcoin was at lower prices, meaning that the risk of missing out on a big move was real. Now, with Bitcoin being in the mid double digits, missing out on a 10% move while you wait for confirmation isn’t as much of a big deal, so there is no need to rush out of a good alt position if Bitcoin dominance bottoms out.

A reversal in Bitcoin dominance does not necessarily mean a reversal in the price (it could be that Bitcoin is dropping at a slower rate than alts), so we can’t expect the dominance rate to positively impact the valuation. However, with Bitcoin having stagnated and then dropped in price while alts have been ripping, it could well act as an indicator that Bitcoin is preparing for another move, albeit when the dominance rate is a bit higher.