It’s not always obvious to everyone how capital flows in the cryptocurrency industry. For those who don’t fully understand this process, let’s break it down in this article. Knowing where the money moves can help you enter the market at the right time and maximize your profits.
Capital Flow in Cryptocurrencies
The main rule in the crypto industry is to be where the money flows. Capital typically enters the market through Bitcoin (BTC), which is the first cryptocurrency and acts as an indicator for other assets. After Bitcoin’s price rises sharply, and it becomes clear that its price has reached its peak, capital begins to flow into Ethereum (ETH). This is the second stage, where Ethereum experiences growth.
Next, money starts to move into first-tier projects, and then capital spreads across second-tier projects, and finally, into lesser-known cryptocurrencies, including meme coins. Of course, this is the basic scenario, and deviations can occur when large amounts of capital flow into meme coins in hopes of 100x returns. After that, the cycle repeats itself.
What is “Bitcoin Dominance” and How Does It Affect the Market?
Bitcoin dominance refers to the percentage of Bitcoin’s market capitalization relative to the total market capitalization of all cryptocurrencies. When Bitcoin dominance is high (usually above 50-70%), it means that most of the capital is in Bitcoin, and its price grows rapidly. This typically happens at the beginning of a bull market.
When Bitcoin dominance decreases, especially if it drops below 45%, the long-awaited altseason begins — a period when capital actively flows into altcoins (secondary cryptocurrencies). Altseason is considered powerful when Bitcoin dominance falls to 45-40% or lower, causing altcoins to “explode.” This leads to market overheating, and many early investors begin to take profits by selling their assets.
At this point, FOMO (Fear of Missing Out) sets in among investors who missed the initial growth and now rush to enter the market, hoping to make profits at the peak. In most cases, they buy at the highs and start selling at the first pullback, losing money or, at best, selling at break-even — though this is quite rare.
When to Enter the Market and When to Exit?
As practice shows, you should exit the market when it is overheated, and enter when there is fear and uncertainty in the market. This is the basic principle that helps you avoid buying at the peaks and selling at the lows.
Recommendations for Investors:
– Never invest all of your capital in cryptocurrency at once. Keep some cash reserve so that you can pick up assets after a significant market correction.
– Never fully exit the market. Even when the market is overheated, it’s important to leave some capital behind, so you can always stay involved in the market.
Conclusion
To successfully invest in cryptocurrencies, it’s important to understand how capital flows and Bitcoin dominance work in the market. Knowing these patterns will help you enter the market when others are fearful and exit when others begin to panic. This will not only reduce your risks but also increase your potential returns.
