Bitcoin (BTC) dominance refers to the percentage of the total cryptocurrency market capitalization that is made up by Bitcoin. If Bitcoin's market cap is $500 billion and the total crypto market cap is $1 trillion, then Bitcoin would have 50% dominance.

BTC dominance is an important metric to track because it gives insight into how much of the crypto market is flowing into altcoins versus staying in Bitcoin. Periods of declining BTC dominance often coincide with altseason, when altcoins rally strongly against Bitcoin.

Meanwhile, periods of increasing dominance signify that money is moving back into Bitcoin from altcoins.

Understanding the History of BTC Dominance

Bitcoin dominance has gone through several cycles since Bitcoin's inception in 2009. In the early years, Bitcoin commanded nearly 100% dominance given it was the first and only cryptocurrency. There were no altcoins to challenge it.

Bitcoin dominance steadily declined from 2013 onward with the rise of altcoins. In January 2014, its dominance was 87%, but it had dropped to 85% by year-end. The decline accelerated in 2015, with BTC dominance falling below 80% in August 2015. It bottomed out around 35% in January 2018.

This time period from 2015-2018 marked the rise of Ethereum and the ICO boom. Thousands of altcoins entered the market, eating away at Bitcoin's share. However, after peaking around $20,000 in late 2017, Bitcoin entered a bear market in 2018 while altcoins crashed even harder. Bitcoin dominance rebounded to 65% by the end of 2018.

In 2019 and 2020, BTC dominance ranged between 65-72% as institutional interest in Bitcoin grew while the broader crypto markets remained lackluster. However, throughout 2021, dominance fell again to as low as 39% in September. This coincided with a surge in NFTs, DeFi, metaverse and gaming tokens.

BTC dominance surged back above 48% at the start of 2022 during a broad crypto market decline. It has ranged between 38-48% in 2022 as the crypto markets have gone through turbulent times. Overall, BTC dominance is strongly correlated with crypto market cycles.

Why Is BTC Dominance Declining in the Long Run?

While Bitcoin dominance fluctuates based on market cycles, the long-term trend has clearly been downward. There are several reasons for this:

• Growth of altcoins - The main reason is the proliferation of altcoins, which have steadily captured a larger share of the crypto market. There are now over 20,000 cryptocurrencies ranking in the top 200.
• Diversification - During bull markets, investors diversify into altcoins seeking higher returns. Retail investors especially begin speculating on cheaper altcoins.
• New use cases - Many altcoins have innovated with new capabilities beyond just payments, like smart contracts, DeFi, NFTs, gaming, etc. This expands the crypto ecosystem beyond just using Bitcoin as a form of digital money.
• Scalability issues - Bitcoin still faces challenges like slow transaction speeds and high fees that make it difficult to use for everyday payments. Newer blockchains have focused on scalability.
• Criticism of mining - Bitcoin's mining-based consensus mechanism has come under criticism for high energy use. Alternative consensus models like proof-of-stake are viewed as more efficient.

These factors have driven adoption of altcoins and enabled them to capture a larger slice of the crypto market cap. As long as new altcoins and use cases continue emerging, Bitcoin's share is likely to keep declining. However, Bitcoin is still by far the dominant cryptocurrency.

Current State of Bitcoin Dominance

As of September 2022, Bitcoin dominance is around 40%, near the lower end of its historical range. The total crypto market cap is approximately $960 billion, of which Bitcoin comprises around $390 billion.

Most of the rest of the market is made up by smart contract platforms like Ethereum and altcoin ecosystems like Solana and Cardano. Stablecoins like Tether also account for a sizable share at nearly $70 billion.

Some analysts argue that BTC dominance is artificially suppressed right now due to the outsized weight of stablecoins, many of which are pegged to the US Dollar rather than Bitcoin. Adjusting for stablecoins, Bitcoin dominance would be over 50%.

Others argue that Ethereum should be considered alongside Bitcoin as a blue-chip crypto asset rather than just an altcoin. Since Ethereum has the second largest market cap around $170 billion, combining it with Bitcoin would put their total dominance above 60%.

Proponents of this view claim that Bitcoin and Ethereum form a "digital gold and digital silver" monetary duo that are fundamentally different from other crypto assets. When categorized this way, the combined BTC and ETH dominance may not have declined as much as BTC dominance alone.

Future Trajectory for Bitcoin Dominance

Opinions are mixed around where Bitcoin dominance might go in the future. Here are some perspectives:

• Dominance will keep declining as altcoin adoption grows - This view sees altcoins continuing to gain market share as developers build out their capabilities and users adopt them for more specialized use cases. Just as Windows and Mac carved out niches versus Linux, some altcoins may co-exist with Bitcoin.
• Bitcoin will remain dominant as the scarcest "crypto reserve asset" - This perspective believes Bitcoin's fixed 21 million supply and position as the most decentralized cryptocurrency will ensure it remains the dominant store of value in the crypto markets. Altcoins may become more useful for transactions, but Bitcoin will be the primary reserve asset.
• Bitcoin dominance will fluctuate cyclically based on market cycles - This outlook believes Bitcoin dominance will rise and fall based on investor sentiment during bull and bear markets. But the generalcrypto ecosystem will grow over time, moderating Bitcoin's dominance.
• A few altcoins will emerge as blue chips that eat away at Bitcoin's share - This view sees another altcoin like Ethereum potentially challenging Bitcoin's supremacy in the next 5-10 years. Network effects may cause large swaths of crypto activity to coalesce around a few dominant chains.
• Regulatory scrutiny will dampen altcoin valuations - Some think increased scrutiny on altcoin fundraising or threats of securities classification could curtail speculation in altcoins, indirectly boosting Bitcoin's dominance again. But regulation remains a wild card.

Overall, crypto markets remain young and fast-changing. While Bitcoin was the sole cryptocurrency for its first few years, it is unlikely to maintain 50%+ dominance in the long-run. However, predictions that Bitcoin will fall to negligible levels of dominance are also likely overblown. The most probable outcome is that Bitcoin stays as the largest cryptocurrency, but its dominance trends downwards towards 25-45% in the coming years as the ecosystem expands. But this depends heavily on how much traction various altcoin use cases gain with businesses and consumers. The outcome remains highly uncertain at this stage.

Bitcoin dominance has declined from nearly 100% at inception to around 40% currently as altcoins have proliferated. However, Bitcoin remains the reserve cryptocurrency with the largest market cap by far. Experts disagree on how much lower Bitcoin dominance will go due to the inherent unpredictability of crypto adoption trends.

While some level of long-term decline seems likely as altcoins carve out niches, Bitcoin still has strengths in decentralization and scarcity that provides a solid base of value. Therefore, while Bitcoin is unlikely to maintain 50%+ dominance in the long-run, predictions of its dominance declining to single digits also appear overblown. The most balanced view is that Bitcoin dominance will vacillate cyclically for the foreseeable future but drift lower towards the 25-45% range over the next 5-10 years as the broader crypto ecosystem expands. But the crypto markets are young and dynamic, so the future path of Bitcoin dominance remains highly uncertain.