Bitcoin rises 6% and is $20,000, dominance may increase during bear market

Last Updated: 5 July 2022

The price of bitcoin has risen by 6% compared to 24 hours ago, and the cryptocurrency is again above 20 thousand dollars. In addition, in this article, we shall look at the dominance of bitcoin over the rest of the crypto market.

Asia wakes up and gives bitcoin push

Last night at 3 am Dutch time, bitcoin reached a value of 20,400 dollars (19,600 euros). That time coincides with the major Asian markets waking up. Depending on whether you look at the clock in China, South Korea, Japan, or Indonesia, that’s somewhere between 7 and 10 in the morning.

It seems that this peak was caused by a short squeeze. Many traders have taken a position betting on a fall (short) in the bitcoin price. If bitcoin rises unexpectedly (for them), and they do not have enough money to maintain their position, they liquidate it.

Buying Bitcoin to Hold Position

But what you often see is traders preferring to keep their positions open rather than lose everything in a liquidation. However, they have to buy bitcoin to hold as collateral for their short. This causes the price to rise a little more, which in turn causes more short positions to be compromised, which in turn causes more buying and a further rise in the price. Repeat this a few times, and you will understand why the value of bitcoin can rise $1,000 within 24 hours.

By the way, it is not just traders with short positions who are buying bitcoin to hold more collateral, long traders are also preparing. You can see this in the chart below.

Expect a lot of volatility

The first arrow in the chart above shows that the funding rates are close to neutral, meaning that the collateral of both shorts and longs will be strengthened accordingly. The second arrow points to an increase in open interest. This indicates all shorts and longs, with $615 million worth of positions opened in the last few hours.

This normally makes for a volatile price in the short term. So you can expect some fireworks today, and fortunately, those fireworks have caused the price to rise so far, but that could change today.

Bitcoin dominates 20,000 other crypto currencies

Currently, 42.4% of the total value of the entire crypto market consists of bitcoin. This percentage is called bitcoin dominance.

In January 2020, there were approximately 2,400 cryptocurrencies. In 2021, that number increased by 73% to 4,155. According to Coinmarketcap, at the time of writing, there are 19,930 cryptocurrencies, or 380% more crypto assets compared to January last year. Anyone who has been involved with crypto for more than a week can tell you that 99% of these coins can be summarised with this emoji.

What conclusion can you draw from this? Nothing yet, because there is actually only really good comparison material since 2016. Before that, the market consisted of 95% bitcoin, and the rest was really just Ethereum and a bit of doge and XRP. But suppose we discount the length of this short time frame, then you can identify two trends.

Bitcoin more dominant in the short term

The blue line below is, again, bitcoin dominance. The two yellow areas roughly indicate the bull markets of the past 6 years. The first is the 2017 bull market and what you see is that as more traders get involved in crypto, bitcoin dominance is waning and altcoins are gaining in popularity.

During the ensuing bear market, bitcoin dominance rises but no longer reaches pre-2017 levels.

As part of this pattern, we also saw during the 2021 bull market, bitcoin became less dominant, and everyone was looking for the next big altcoin.

It is somewhat likely that bitcoin will gain ground again during the current bear market as altcoin prices tend to be much more volatile than bitcoin. We will have to wait for the next bitcoin halving and the accompanying bull run to see if the above theory holds.

Author

  • Florian Feidenfelder is a technical analyst with many years trading experience in the stock exchange and crypto markets. He has broad experience in forex trading, coaching, and funds management.

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