During the economic downturn, bitcoin has always dominated the cryptocurrency market.
The dominant position of bitcoin is prominent. The data shows that the dominant position of bitcoin is soaring as the unstable market in recent months continues. According to the latest data of coinmarketcap, the market value of bitcoin rose to more than 46%, while the market value of Ethereum fell to 17.66%. The last time it reached 45% was in October 2021. It can be said that the market value of bitcoin reached a peak in nearly seven months.
Market value advantage refers to the market proportion represented by an asset. Bitcoin has always dominated the bear market cycle, but under the bullish market conditions, it often makes way for other assets such as Ethereum. The dominant position of bitcoin broke through 70% soon after it first broke through $20000 in december2020, but then with the surge of other assets, it will face bloodshed for most of 2021. The dominance of bitcoin has been increasing throughout the year and has rebounded in the past week.
So far, the encryption market has experienced months of turbulence and the global market value has plummeted. In the fluctuation, the performance of bitcoin is also very weak. Its current trading price is about $29400, lower than the key psychological level of more than $30000. However, the performance of other low market value assets is much worse, and even Ethereum’s market value ranking is declining, which also explains why the dominant position of bitcoin is soaring.
Factors affecting bitcoin status
Generally speaking, the shape and direction of the total market value of cryptocurrency will follow the shape and direction of bitcoin. This is partly due to the impact of bitcoin on the entire encryption market, because it is the first, largest and most widely recognized cryptocurrency. In the early days of cryptocurrency, the dominant position of bitcoin will hover at 95% or higher, because few counterfeit coins attract investment.
However, as other counterfeit coins began to attract interest, the dominance of bitcoin declined. The dominant position of bitcoin is often affected by the so-called “Shanzhai season”, in which Shanzhai coin gains market share relative to bitcoin, thus reducing the dominant position of bitcoin.
In addition, the adverse news about bitcoin will also affect the market share. For example, since 2021, with the negative news about the energy use of bitcoin and the news that China has eliminated bitcoin mining increasing its investment in counterfeit coins, the dominant position of bitcoin began to plummet again.
Interestingly, when the market goes down, especially in the event of a large-scale panic event during the downward period, the market value of bitcoin increases rapidly. For example, as Terra began to collapse, the dominance of bitcoin increased. When usdt lost its anchor exchange rate and triggered panic selling, although bitcoin was shaken in the event, it performed relatively well relative to other assets.
However, it is worth mentioning that the encryption market is a complex ecosystem, and the dominance of bitcoin is not always directly affected by the bull or bear market, because it is a ratio, not an absolute term. This means that if the price of bitcoin falls, but the rest of the cryptocurrency market falls at a similar rate, the dominance of bitcoin may remain unchanged.
However, when the encryption market falls, but the market value of bitcoin rises relatively, it generally means that encryption investors have a stronger consensus on the security of bitcoin.
Bitcoin under macro environmental pressure
In addition, changes in the macro environment have also brought pressure to the encryption market. According to CME “fed observation”: the probability of the Fed raising interest rates by 25 basis points by June is 0%, the probability of raising interest rates by 50 basis points is 99.3%, and the probability of raising interest rates by 75 basis points is 0.7%; By July, the probability of cumulative interest rate increase of 25, 50 and 75 basis points is 0%, the probability of cumulative interest rate increase of 100 basis points is 89.5%, the probability of cumulative interest rate increase of 125 basis points is 10.4%, and the probability of cumulative interest rate increase of 150 basis points is 0.1%.
Loretta mester, President of the Federal Reserve Bank of Cleveland, said that unless there is “convincing” evidence that inflation based on a series of data has peaked, the Federal Reserve may need to continue to raise interest rates until September under the current circumstances. Mester and other policymakers, including Federal Reserve Chairman Jerome Powell, have said that they expect to raise interest rates twice in June and July after raising interest rates by half a percentage point last month.
In addition, the currency markets in the euro zone currently predict that the European Central Bank will raise interest rates by more than 125 basis points by December. Meanwhile, it is widely expected that the Bank of Canada will raise interest rates by another 50 basis points after raising interest rates by 50 basis points in April (the first time in more than 20 years) and raise the overnight target interest rate to 1.5%. The Central Bank of Canada has previously announced the implementation of quantitative tightening policy, so now the market will focus on the key interest rate guidance of the Central Bank of Canada.
Market analysts believe that the risk of economic recession caused by excessive tightening of monetary policy is rising. If the US Federal Reserve sharply raises interest rates and punctures the foam in the US stock market, housing market and credit market, it may trigger a deep economic recession.
In this case, the data shows that the dominant position of bitcoin is further enhanced. According to the coinshares report, in the week ended June 3, the net inflow of bitcoin focused investment funds was $125.9 million, bringing the total net inflow since the beginning of the year to $506million. Overall, the net inflow of encryption fund is about USD 100million, which means that the inflow of bitcoin fund makes up for the outflow of Shanzhai coin fund. Ethereum’s investment products have a net outflow of US $32million. It has experienced capital outflow for the ninth consecutive week. So far this year, it has outflow of more than US $350million.
Jamesbutterfill, research director of coinshares, said that this differential performance showed that investors were flocking to the relative security of bitcoin.
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