The crypto market has seen significant fluctuations in recent years, with Bitcoin and Ethereum at the forefront of these changes. In 2023, Bitcoin’s dominance rate has risen to 48.5%, the highest since July 2021, while Ethereum’s dominance rate remains stagnant between 19% and 20%. Understanding the relationship between Bitcoin and Ethereum is crucial for investors looking to navigate the crypto market successfully.
Bitcoin Dominance
Bitcoin’s dominance rate measures the largest cryptocurrency’s share of total market valuation. The metric has risen by 15% this year, making Bitcoin the dominant player in the crypto market. Several factors contribute to Bitcoin’s dominance in 2023. Firstly, the recent banking sector instability in the US and the resulting sharp repricing of interest-rate expectations lower worldwide have benefited Bitcoin. The cryptocurrency has a history of drawing haven bids during banking crises, making it an attractive option for investors.
Secondly, Bitcoin has regained its store-of-value narrative after multiple US banks failed in mid-March. Since then, Bitcoin’s dominance rate has been rising, making it an even more attractive investment option. However, Bitcoin’s dominance rate is now at a “multiyear resistance” that has capped the upside in the past, meaning ether and other coins could soon outshine Bitcoin.
Ethereum Upgrades and Investor Caution
The highly anticipated Shanghai-Capella hard fork, set to occur on Wednesday, is expected to have a long-term bullish effect on Ethereum’s native token. However, investors are cautious about pricing Ether ahead of the upgrade due to several factors. Firstly, the upgrade will unlock over 18 million ETH, and the market is worried that the unlocking may bring about a sell-off, causing uncertainty in the market. While partial withdrawals will take several days to process, full withdrawals representing most of the ETH staked will take longer, translating into $80-$100M worth of ETH being withdrawn per day.
Secondly, regulatory concerns are weighing on investors, with the US SEC alleging that Ethereum staking services offered by centralized exchanges amount to selling unregistered securities in the US. This has caused investors to prefer Bitcoin, which is considered to have lower regulatory risks. Additionally, Ether’s underperformance relative to Bitcoin and Ether put options drawing higher prices than call options may be a cause for concern.
Conclusion
In conclusion, the crypto market in 2023 is characterized by Bitcoin dominance, Ethereum upgrades, and investor caution. Understanding the relationship between Bitcoin and Ethereum is crucial for investors looking to navigate the market successfully. As the crypto market continues to evolve, monitoring Bitcoin and Ethereum’s relationship in the future will be essential for making informed investment decisions.