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Bitcoin dominance has remained a contentious and highly watched metric over the last few years. For investors trying to time the market or rotate capital, this chart is often the "North Star." However, recent market movements have created a divergence that is confusing many traders. Standard charts suggest Bitcoin dominance has stalled, leading some to hope for an imminent "alt season."
The reality, however, is far more nuanced. By peeling back the layers of the market cap data—specifically the role of stablecoins—we uncover a different story. The market is not signaling a rotation into riskier assets; rather, it is signaling a flight to safety. Understanding the mechanics behind this trend is crucial for navigating the current cycle and avoiding capital erosion in depreciating assets.
Key Takeaways
- Stablecoins Distort the Chart: When including stablecoins (USDT, USDC), Bitcoin dominance looks flat. When excluding them, Bitcoin dominance is in a clear uptrend, currently sitting near 67%.
- Altcoins Are Bleeding, Not Rallying: The stagnation in standard Bitcoin dominance is not caused by altcoins outperforming Bitcoin. Major pairs like ETH/BTC and SOL/BTC have been dropping since September.
- The "Flight to Safety" Mechanic: Dominance is falling because stablecoin market caps are rising (or holding steady) relative to volatile assets, indicating a defensive market posture.
- Macroeconomic Headwinds: Unlike the post-QT rally of the previous cycle, current interest rates remain high relative to the neutral rate, suppressing the appetite for riskier altcoin plays.
The Illusion of Stagnation: Why the Charts Disagree
If you look at the standard Bitcoin dominance chart (BTC.D) on TradingView, it appears to have hit a ceiling. Since September, the metric has seemingly stalled, hovering around the 58% mark. Historically, when Bitcoin dominance tops out, capital rotates into altcoins, triggering significant rallies.
However, relying solely on this view can be dangerous in the current market environment. The standard calculation includes the entire crypto market capitalization, meaning stablecoins like Tether (USDT) and USD Coin (USDC) are part of the denominator.
The "Real" Dominance Trend
To get an accurate read on risk appetite, we must look at Bitcoin dominance excluding stablecoins. When you remove stablecoins from the equation, the picture changes strictly. Instead of stalling, Bitcoin dominance has continued to climb, currently sitting significantly higher than the standard chart suggests.
"In reality, if you exclude stable coins from the chart, what you'll notice is that ever since September, Bitcoin dominance has been going up. In fact, excluding stable coins, Bitcoin dominance is actually at 67%."
This discrepancy explains why your altcoin portfolio might be bleeding against Bitcoin even though the dominance chart looks flat. The market isn't rotating from Bitcoin to Alts; it is rotating from volatile assets into stablecoins.
Altcoin Performance: A Reality Check
There is a persistent misconception that if Bitcoin dominance is dropping (or stalling), altcoins must be performing well. This is not necessarily true, especially during bearish or distribution phases. We can verify this by looking at the "Total 2" metric (the crypto market cap excluding Bitcoin) minus USDT, divided by Bitcoin.
When analyzing the data since September, a clear trend emerges across major assets:
- ETH/BTC: Has been in a downtrend since September.
- SOL/BTC: Has shown weakness and bleeding against Bitcoin.
- BNB/BTC: Continues to drop.
If altcoins were truly exhibiting strength, these pairs would be rallying. Instead, they are falling. The reason the standard dominance chart hasn't skyrocketed is that stablecoin dominance is rising alongside Bitcoin's relative strength. This is a classic "flight to safety" where investors exit altcoins into either Bitcoin or stablecoins.
The Macro Factor: Why This Cycle is Different
In previous cycles, specifically around 2019, we saw altcoins stage a relief rally after Quantitative Tightening (QT) ended. During that period, altcoin pairs showed strength against Bitcoin for a brief window before eventually capitulating into new lows.
Investors hoping for a repeat of that specific pattern today must account for the macroeconomic differences. The primary differentiator is the Federal Funds Rate relative to the "neutral rate" (approximated by the 2-year yield).
Interest Rates and Risk Appetite
In the last cycle, when QT ended, interest rates were significantly lower relative to the neutral rate. This provided a more favorable environment for speculation. Today, the Fed funds rate remains relatively high. Until the spread between the Fed funds rate and the 2-year yield normalizes, the liquidity environment remains hostile toward high-risk assets.
"I think one of the differences right now and last cycle is that last cycle when QT ended the Fed funds rate was a lot lower... especially relative to the neutral rate for that cycle."
This suggests that while we might see short-term volatility, the macro backdrop supports a continued grind upward for Bitcoin dominance (excluding stables) rather than a durable altcoin season.
Future Outlook: Cycle Phases and Distribution
Where do we go from here? Understanding market structure suggests we are likely in a distribution phase. During these periods, Bitcoin may correct, and altcoins generally suffer more significant drawdowns.
The Pattern of Capitulation
History shows that altcoin/Bitcoin pairs often bottom before their USD counterparts. However, simply reaching a prior low is not a guarantee of an immediate reversal. In previous bear markets, pairs would often retest range lows multiple times—or even break below them—before a true bull market accumulation phase began.
We typically see this sequence:
- Alt/BTC pairs bottom first: This happens as Bitcoin dominance peaks.
- USD pairs bottom second: This usually occurs during a final market-wide capitulation event where Bitcoin also drops significantly.
- Stablecoin Dominance Peaks: This marks maximum fear and the point of maximum financial opportunity.
Expectation for Bitcoin Dominance
Despite the current stall on the standard chart, the expectation is that Bitcoin dominance (even including stablecoins) will eventually sweep the highs. This may not happen immediately, but as the bear market dynamics play out and stablecoin market caps potentially adjust, Bitcoin is likely to regain market share.
Investors should remain wary of "bull traps" where a temporary dip in dominance is mistaken for organic altcoin strength. As long as stablecoin dominance is rising, the trend remains defensive.
Conclusion
The crypto market is currently sending mixed signals to those who only look at surface-level data. While standard Bitcoin dominance charts appear to show a market in equilibrium, the underlying data reveals a continued rotation out of altcoins. The rise in stablecoin dominance confirms that liquidity is seeking safety, not risk.
Until macroeconomic conditions shift—specifically regarding interest rates—and until we see a genuine reversal in Alt/BTC pairs that isn't masked by stablecoin issuance, the trend favors caution. Bitcoin dominance, particularly when viewed without the noise of stablecoins, remains in a macro uptrend.
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