First of all I would like to congratulate everyone with the exuberance rally up we’ve had in both bitcoin and the altcoin space the last couple of months.We’ve went from a market cap of $66.252.400.000 in july 2017 to around $700.000.000.000 today and for most of us it feels like this is only the start. With this exuberance there is however the risk of carelessness. While writing this article I know many of you will call it FUD and feel the urge to downvote it right away. I would however like to ask to give it a chance as I’m just a concerned fellow investor.

As I just said we’ve had a crazy run up the last couple of months. The most important factor in in this run up has been in the altcoin space. In the period from july 2017 until today the altcoin market cap has increased from around $40.000.000.000 to around $500.000.000.000. As a result the market cap of bitcoin compared to the total market capitalization (the BTC dominance) has been reduced to 32% as shown in the image below. Now why could this be problem?

Source: https://coinmarketcap.com/charts/#dominance-percentage

Most altcoins are only accessible using a BTC ratio, especially for people in Europe and the USA. In order to cash out profits of an altcoin it must be transferred to bitcoin and the bitcoin counterpart can be sold. This means that the value of an altcoin is dependent on the value of and demand for bitcoin. Many people are aware that the price of an altcoin is dependent of the value of bitcoin, but people tend to forget that demand is just as import. The demand is where things could become problematic with the current bitcoin dominance.

After a crazy run up people tend to want to cash in some of their profits. As I just pointed out, for altcoins this means people are going to start converting their altcoin to bitcoin and start selling their bitcoin counterpart. So how would this look like? For example, imagine that the overall altcoin population wants to cash out 2% of their total altcoin profits. With the current market cap this is around $10.063.225.973. This amount is taken from the altcoin space, converted to BTC and people start selling the BTC counterpart, around 715BTC. From blockchain.info we can find that the average BTC 24h trading trading volume is around $2.600.000.000. This means that if people are start to lock in altcoin profits it would take 4 days of normal trading volume to sell out 2% of altcoin profits. This increase of supply could greatly pressure the price of bitcoin as there is probably not enough demand to buy all this bitcoin at its current price.

Taking an example of 2% is still very gentle in my opinion. Remember, we just had a 1000% increase in the past couple of months. I would not be surprised if around 10% of the total altcoin market cap is going to be cashed out soon. Using the same calculation as in the 2% scenario this will mean that $50.316.129.868 worth of altcoin is going to be converted to bitcoin which is then going to be sold. This is about 19 days of normal bitcoin trading volume, the time it took bitcoin to climb from $10.000 to almost $20.000 only this time not buying power, but pure selling power.

Table I: Since Ethereum does have some more fiat ratio’s I’ve also made a scenario in which I did not include Ethereum in the altcoin MC.

So a long story short. The altcoin space has had a fantastic rally, increasing it’s market cap with more than 1000%. This resulted however in the bitcoin dominance being reduced to around 32%. Almost all altcoins however are only traded using BTC and are thus dependent on the value of bitcoin and it’s demand. To lock in profits from the altcoin space people need to funnel that money through bitcoin to convert it to fiat. Since bitcoin dominance is relativly low at this point, this could mean that the supply created selling bitcoin could outweigh its current demand. This will greatly pressure bitcoins price and thus the altcoin price.

So what now? Well nothing is going wrong yet, and maybe I’m just seeing ghosts. However I would recommend people who are heavily invested in altcoins to keep an eye out for bitcoin dominance.Whether you like it or not, you will need bitcoin to sell out your profits since there are not enough altcoin/fiat ratio’s yet. If bitcoins value keeps going down compared with the overall space this could mean that eventually there would not enough demand for bitcoin to lock in your altcoin position at its current price.