The Halving Effect: Analysing The Impact on Bitcoin Dominance

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The 2024 Bitcoin halving is just a day away, sparking excitement among crypto fans. Although it is not the first time Bitcoin is preparing for halving, many expect this fourth halving to be more significant. One big reason is the changing crypto landscape. Unlike before, there is a surge in alternative cryptocurrencies or Altcoins. At present, the dominance of Bitcoin in the cryptocurrency market remains as low as 51.68%, much weaker than during past halvings. Altcoins now compete closely with Bitcoin for dominance. This raises an interesting question: how will the upcoming halving affect Bitcoin dominance? Let’s dive into some data and see if we can find answers. Are you ready?

1. Bitcoin Halving: What’s It

Bitcoin halving is a major event occurring every four years in the Bitcoin ecosystem. It is the fundamental aspect of how Bitcoin operates, involving the reduction of the reward miners receive for adding new blocks to the blockchain. By halving this reward, the supply of new Bitcoins entering circulation decreases, increasing their scarcity. To date, there have been three such halvings. The next halving is scheduled on 19th April, 2024, adding anticipation and excitement to the crypto community as it awaits the impact on the network and market dynamics.  

Among many others, how the event is going to impact Bitcoin dominance is a sensational question now. 

2. Bitcoin Dominance: What Does It Means 

Before we address the sensational question regarding the event’s potential impact on Bitcoin dominance, we should understand what the concept of Bitcoin dominance actually represents.  

In simple terms, Bitcoin dominance refers to the proportion of the total cryptocurrency market value that Bitcoin holds. Currently standing at 51.68%, it means that Bitcoin makes up slightly over half of the entire cryptocurrency market. This dominance is also a measure of Bitcoin’s influence and importance compared to other cryptocurrencies, known as Altcoins. If Bitcoin dominance is high, it suggests that investors are more focused on Bitcoin. However, if it is lower, as it is now, it indicates a growing interest in Altcoins and a more diversified cryptocurrency market where other digital assets are gaining traction alongside Bitcoin.  

3. Can Bitcoin Halving Impact Bitcoin Dominance 

Undisputedly, Bitcoin halving can impact Bitcoin dominance. Primarily, when the reward for mining new Bitcoin blocks halves, it affects the rate at which new Bitcoin’s enter circulation, potentially altering Bitcoin’s supply dynamics. If demand for Bitcoin remains steady or increases while its supply decreases, its value may rise, attracting more investment. However, as seen in past halvings, this increased interest in Bitcoin may not always translate to a higher dominance percentage. Altcoins may also see increased attention, leading to a decrease in Bitcoin dominance over time.  

4. Analysing Impacts of Bitcoin Halvings on Bitcoin Dominance in Past

Let’s analyse how Bitcoin dominance changed one month and one year after each of its halving events. The first occurred on November 28, 2012, followed by the second on July 9, 2016, and the third, most recent one, on May 11, 2020. We will use the Bitcoin dominance index to track these changes. This analysis will help us understand the impact of halving events on Bitcoin’s dominance over time. 

Read Also : How Will Bitcoin Halving Impact Top Cryptos

4.1. Changes in Bitcoin Dominance after First Bitcoin Halving 

At the time, the first Bitcoin halving occurred, Bitcoin was an extremely dominant player in the market, where Altcoins played the role of a meagre player. In the beginning months of the year 2013, the Bitcoin dominance was 94.8%. That means, others enjoyed less than 5.2% dominance. 

Cryptocurrencies	A year after the first Bitcoin Halving (28, November, 2013)
Bitcoin	89.27%
Others	10.73%

The date indicates that Bitcoin dominance slightly decreased to 89.27% a year after the first halving, compared to what it was during the beginning of that year. It naturally helped others to climb from 5.2% to 10.73%.  

4.2. Changes in Bitcoin Dominance After second Bitcoin Halving 

Cryptocurrencies	Dominance on July 9, 2016	Dominance on August 9, 2016	Dominance on July 9, 2017
Bitcoin	83.48%	80.05%	45.8%
Others	16.51%	19.95%	54.2%

The data shows that the Bitcoin market dominance dropped from 83.48% to 80.05% just a month after the second Bitcoin halving. In the corresponding period, others saw an increase from 16.51% to 19.95%. A year after the event, the dominance of Bitcoin in the crypto market fell beyond the half marking to 45.8%, allowing others to climb above the marking to 54.2%.  

4.3. Changes in Bitcoin Dominance After Third Bitcoin Halving 

Cryptocurrencies	Dominance on May 11, 2020	Dominance on June 11, 2020	Dominance on May 11, 2021
Bitcoin	66.18%	64.57%	42.85%
Others	33.81%	34.43%	57.15%

Akin to what occurred following the first and second halving, a month after the dominance of Bitcoin slipped from 66.18% to 64.57%. And, it went below the fifty per cent mark to 42.85% after the event. It allowed others to climb from 33.81% to 34.43% in a month and to 57.15% in a year. 

Read More : Bitcoin Halving Countdown Begins: Will BTC Price Hit $100K or Crash to $55k?

5. Possible Changes in Bitcoin Dominance after the Next Bitcoin Halving 

The below data shows the current market dominance indexes of the top cryptocurrencies. 

Cryptocurrencies	Market Dominance
Bitcoin	51.68%
Ethereum	15.26%
Tether	4.45%
BNB	3.4%
Solana	2.51%
XRP	1.13%
Others	21.56%

It clearly illustrates that Bitcoin enjoys an impressive dominance of 51.68%, Ethereum and Tether follows with 15.26% and 4.45%. Others enjoy 21.56%. If the developments happen after the upcoming halving event resembles the ones that happened in the past, Altcoins are likely to witness a massive jump in terms of its dominance in the market in a year. Maybe, a month after the event, they show a slight increase, and a year after, a major increase.    

Let’s see whether the present market trend is favourable for the top competitors of Bitcoin; Whether they can reap the benefit of the possible decline in the market dominance of Bitcoin. 

The below date shows the trend witnessed in the market dominance data of the top five cryptocurrencies, excluding Bitcoin.  

Cryptocurrencies	Last Month  19 March, 2024	Six Month Before 19 October, 2023	Last Year19 March, 2023
Ethereum	15.64%	16.6%	17.83%
Tether	4.25%	7.39%	6.24%
BNB	3.21%	2.86%	4.39%
Solana	3.1%	0.91%	0.7%
XRP	1.32%	2.45%	1.63%

The data says that the second largest cryptocurrency has witnessed a fall in the market dominance index from 17.83% last year to 15.64%. As it is a slight decline, the trend is not completely unfavourable for this crypto. Meanwhile, Solana has marked an impressive increase in the market dominance index from 0.7% to 3.1%. In fact, it is the only crypto in the top five list that has marked such an impressive expansion in terms of market dominance. Clearly, the trend is favourable for the coin, if other factors don’t play against them. 

Read More : Will Crypto Skyrocket? Ripple’s CEO Reveals What’s Next Before the Bitcoin Halving!

Endnote 

As the 2024 Bitcoin halving approaches, the analysis suggests a potential shift in cryptocurrency market dynamics, with Altcoins poised to gain momentum in the wake of Bitcoin’s diminishing dominance. The interplay between Bitcoin’s scarcity and Altcoin’s growing appeal underscores a dynamic landscape where diversification and completion drive innovation and investment. The evolving crypto narrative promises an intriguing journey ahead, marked by flux and opportunity.