Hype of the Week: Bitcoin Dominance and Crypto Money Flow Cycles

Bitcoin Dominance

Bitcoin Dominance refers to the measure of Bitcoin’s market capitalization in relation to the rest of the crypto market, with dominance being denoted as a ratio. Hence, the greater the market capitalization of Bitcoin, the clearer its dominance versus the rest of the crypto coins. At the time of writing, Bitcoin’s dominance sits at 63.8% of the market, as per the Bitcoin Dominance Index.

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In the nascent period of the crypto industry, Bitcoin, held complete dominance, constituting ~80% of the entire industries market capitalization between 2009-2017; a few altcoins called colored coins existed, but Bitcoin was the name of the game.   However, a change in dominance occurred in March 2017 as newcomers in the form of altcoins burst onto the scene. By June Bitcoin dominance fell from 85% to 38%, signaling the first real “alt season”. Later that year, Bitcoin went on its fabled bull-run which started in July and ended in December. Like clockwork, Bitcoin’s bull-run period saw the flagship crypto’s dominance rise to 63%, as altcoin dominance waned.

Source: Coinmarketcap.com

Thus, a seemingly cyclical pattern began to emerge, where money or capital moves between Bitcoin to altcoins and back to Bitcoin.

Crypto Money Flow Cycles (CMFC)

This movement from Bitcoin to altcoins is part of the CMFC model, which indicates that there are a series of capital flows that occur with a degree of reliability throughout the crypto space. The flow of capital is as follows:

CMFC = Fiat ➡️  Bitcoin ➡️ Altcoins ➡️  Bitcoin ➡️  Fiat

Fiat capital moves into Bitcoin, raising the market capitalization and leads to Bitcoin dominance. As the price of Bitcoin surges and more investors jump onboard, investors either liquidate their Bitcoin holdings back into fiat or look for alternative investments in the altcoin market. A key reason to move capital from Bitcoin could be FOMO, a clear signal that a price rally has run its course.

Once the Bitcoin hype has ceased, the altcoin season can begin. Those who moved capital from Bitcoin to altcoins once altcoin dominance to Bitcoin grew could have made substantial profits. As the altcoin season begins to experience the same sort of FOMO, investors can move their capital back into Bitcoin as the altcoin dominance declines and hop onto the ascending Bitcoin price and growing dominance. In the end, after profits have been made and the crypto market quiets down, money is transferred back to fiat to be reinvested elsewhere.

Source: Coinlib


In this piece we have delved into Bitcoin Dominance and outlined how the dominance fits into the CMFC.  From an investors point of view, it is important to note the following:

  • Bitcoin dominance rises as altcoin dominance declines and altcoins drop in value in terms of Bitcoin.
  • Bitcoin dominance declines as altcoin dominance rises and altcoins gain in value in terms of Bitcoin.

This relationship develops as investors are either priced out of Bitcoin, hence, look for alternative investment solutions or feel that the market will crash and wish to make more Bitcoins elsewhere. If an investor wishes to accumulate Bitcoin as opposed to dollars, they can preserve the value of their Bitcoin by moving their capital to altcoins. Conversely, if they wish to accumulate dollars, moving Bitcoin to back into fiat occurs.