Market Wrap: Bitcoin Dips as Dominance Over Ethereum Shrinks

BTC declines below $45K after the U.S. Fed points to a possible rate hike in March.

AccessTimeIconJan 5, 2022 at 9:22 p.m. UTC
Updated May 11, 2023 at 5:05 p.m. UTC
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Bitcoin was down about 4% over the past 24 hours along with equities on Wednesday. The intraday sell-off occurred after the U.S. Federal Reserve pointed to a possible interest rate hike in March, which is sooner than many had expected.

But despite the price dip, some analysts expect BTC will stabilize in a range of between $40,000 and $50,000, which could keep volatility low.

Others are looking to alternative cryptocurrencies (altcoins) such as ETH, LINK, ICP, FTM that have outperformed BTC over the past week.

For example, some decentralized finance (DeFi) tokens that fell out of favor in early 2021 still managed to retain some top spots in terms of total value locked, which represents the number of assets that are staked in a protocol.

“Perhaps as they are considered more battle-tested and a safer store of capital compared to newer competitors,” Delphi Digital wrote in a blog post.

For now, even with altcoins in the spotlight, volatility has declined in both BTC and ETH recently.

“Our view is that this volatility compression is structural and will be a theme for 2022,” crypto trading firm QCP Capital wrote in a Telegram announcement. “With that said, we think this dip in the front-end [of the volatility curve] is overextended and we’re adding long gamma here.”

Traders are “long gamma profit” when the underlying asset moves more than expected.

Latest Prices

  • Bitcoin (BTC): $43,943, -4.98%
  • Ether (ETH): $3,592, -5.85%
  • S&P 500: $4,700, -1.94%
  • Gold: $1,810, -0.19%
  • 10-year Treasury yield closed at 1.69%

Bitcoin dominance declines

The bitcoin dominance ratio, or the measure of BTC’s market capitalization relative to the total crypto market capitalization, continued to decline toward 39% on Wednesday. The ratio is at the lowest level since April 2018, when cryptocurrencies were in a bear market.

Typically, during periods of market panic, some traders would sell altcoins, which are deemed to be risky. The remaining option for traders is to seek relative safety in BTC, which results in a higher bitcoin dominance ratio.

This time, however, altcoins continue to outperform bitcoin, which suggests investor appetite for risk remains strong.

Bitcoin dominance ratio (TradingView)
Bitcoin dominance ratio (TradingView)

Ethereum’s market cap getting closer to bitcoin’s

Ethereum, the second-largest cryptocurrency by market cap, is roughly 50% away from overtaking bitcoin as the largest cryptocurrency.

Some analysts refer to the battle for crypto’s top crown as “The Flippening.” Over the past year, ether has gained ground versus bitcoin across several metrics, including active addresses, Google search interest and transaction counts.

ETH's market cap vs. BTC (BlockchainCenter)
ETH's market cap vs. BTC (BlockchainCenter)

The rise in ether’s market capitalization suggests investors are looking for potential opportunities for return beyond bitcoin.

“There are hard dates and a hard outline from the Ethereum Foundation to increase the network throughput and lower transaction fees,” Katie Talati, head of research for crypto and blockchain asset management firm Arca, said during an interview on CoinDesk’s “First Mover” show.

Ethereum’s network improvements could be a catalyst to attract more funds to ether versus bitcoin, according to Talati.

Altcoin roundup

  • The state of Ethereum’s fee market: CoinDesk’s Edward Oosterbaan examined the motivation for EIP 1559 and if after four months, there are any real impacts on the Ethereum blockchain. So far, Coinbase noted it is saving 27 ETH per day from base-fee refunds and faster transaction confirmations by 11 seconds compared with before the London hard fork. On the opposing side, Galaxy Digital’s look into EIP 1559 reported issues due to increased block size (gas limits).
  • Chainlink (LINK) jumps, outperforming bitcoin: LINK led gains among major cryptocurrencies over the past two days as the broader market showed signs of a recovery. LINK is used to pay for price feeds and other services on Chainlink and has a market capitalization of $12 billion, CoinGecko data show. The price, however, is down 50% from its record of $52 last May.
  • Algorand enters the metaverse: The Drone Racing League (DRL) and Web 3 game developer Playground Labs have tapped Algorand’s blockchain to create the first play-to-earn drone game in the metaverse, the league announced on Wednesday. While the details are still to be worked out, the league said “players will race DRL drones” (presumably digital ones) for cryptocurrency and non-fungible tokens on Algorand. Read more here.

Relevant News

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Largest winners:

Asset Ticker Returns Sector
Chainlink LINK +4.6% Computing

Largest losers:

Asset Ticker Returns Sector
Cosmos ATOM −12.4% Smart Contract Platform
Polygon MATIC −7.9% Smart Contract Platform
Polkadot DOT −7.1% Smart Contract Platform

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.


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Damanick Dantes

Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.

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