Despite 2023 opening with a huge 23% move by Bitcoin, it seems that things have taken a turn for the worse. As we enter March, several macro factors have caused crypto’s total market capitalization to fall under $1 Trillion for the first time in over 2 months.

Curiously, the markets are not behaving as one would expect it to during the most recent crash.

While most altcoins traditionally outperform Bitcoin to both the upside AND the downside during market movements, the leading cryptocurrency has actually performed poorly compared to many of its compatriots during the latest move.

Also Read: Market Cycles In Crypto: How To Identify Tops and Take Profits

Could Bitcoin’s Poor Performance Signal Another Leg Down?

Bitcoin’s dominance by market capitalization has gotten significantly worse during every cycle.

However, this metric has always managed to shine through during the bear stages of the market, when many investors convert their allocation into what was perceived as the safest crypto asset.

Image: 7d performance via Coin360

Although previous bear markets saw Bitcoin increasing in market dominance by 10-20%, the last few months have been nothing short of painful for Hodlers of crypto gold.

Market capitalization dominance has been on a freefall since 2021, falling more than 20%. Furthermore, it has struggled to regain any significant levels, and has been fluctuating between 40-50% of crypto’s total market capitalization since.

Moreover, the catch 22 remains that Bitcoin drives altcoin rallies, which in turn drives Bitcoin prices higher.

Should both Bitcoin dominance and altcoin prices continue to fall, we could see a negative feedback loop.

While in a normal market cycle, investors would cut their losses and denominate the majority of their portfolio in Bitcoin, it’s worrying dominance could see a lack of price support for the king of crypto.

As it continues it’s sell off, altcoins will fall while Bitcoin fails to maintain any key levels of support, spurring altcoins to fall even harder.

Furthermore, the ongoing collapse of both CeDeFi and banks combined with increased regulation over Web3.0 could mean that investors, especially institutional ones, are choosing to cash out into FIAT instead of Bitcoin.

What Does This Mean For Crypto?

Don’t be too quick to conclude that the prophesized Ethereum flippening is soon – remember what happened the last time we all talked about it?

Instead, Bitcoin’s poor metrics likely mean one of two things:

  1. Cryptocurrency is a healthier, more diverse industry
  2. We are nowhere near a bottom

The first point is what many market participants would prefer. As Ethereum continues to make key upgrades to its infrastructure, especially with the successful merge and the Shanghai upgrade, it’s dominance has continued to climb, gaining favour amongst both retail and institutional investors.

Furthermore, the success of both L1s like BNB Chain and Avalanche, alongside scaling solutions like Arbitrum, Polygon, and Optimism, means that there are multiple, diverse ecosystems that exist outside of Ethereum and Bitcoin.

Of course, Layer 0s like Cosmos also seem to be setting up for an exciting 2023.

However, what many fail to consider is the possibility of us being nowhere clear to the bottom of the bear market.

After all, Crypto is still a Bitcoin-led market, and during it’s historic crash to $16,000, Ethereum also fell below $1,000 for an extended period of time.

Additionally, while top 10 cryptocurrencies such as Ethereum and BNB outperformed Bitcoin to the downside, many other ecosystems were hit hard by the recent leg down.

Solana, for example, suffered a 17% loss in the last 7 days. Avalanche, Polygon, and Fantom also suffered double digit losses across the board.

Image: Bitcoin Dominance overlayed with Bitcoin Price (orange) via TradingView

According to past cycles, the Bear market bottoms would often be heralded by sharp spikes in bitcoin Dominance. Following this, the market would start to pick up momentum over the span of a few months and eventually go parabolic.

Often, this coincides with Bitcoin halvings.

However, we are still approximately 400 days, or over a year away from the next halving, which could indicate that we may have to test the Bitcoin bottom a few more times before a proper recovery comes.

Also Read: The Shocking Truth About Bitcoin’s Limited Supply

[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]

Featured Image Credit: Chain Debrief