Dominance Divergence
capital misalignment indicator
Dominance divergence refers to a scenario in which two or more dominance metrics (like BTC.D, ETH.D, or XRP.D) move in opposing directionsÔÇösuggesting a short-term distortion in capital flow. These divergences can signal the start of a market rotation, an unsustainable rally, or an impending shift in investor sentiment. When one asset gains dominance while another also rises unexpectedly, it often means risk appetite is fragmenting or that capital is cycling rapidly between sectors.
Use Case: Bitcoin dominance (BTC.D) is rising while Ethereum and XRP also post gains in dominance. This divergence suggests capital is rotating aggressively and could foreshadow a blowoff top or rotation into altcoins, prompting traders to monitor liquidity flows closely.
Key Concepts:
- BTC.D vs ETH.D ÔÇö When both rise, market is indecisive or overheated
- XRP.D Spikes ÔÇö Can diverge from BTC.D in utility-based altcoin rotations
- Risk Appetite Fracture ÔÇö Conflicting dominance trends often precede volatility
- Rotation Warning ÔÇö Divergences act as early altseason or exit cues
- Macro Signal ÔÇö Useful for confirming tops, corrections, or inflow anomalies
Summary: Dominance divergence is a high-level market signal that reflects instability or friction in capital rotation. When BTC.D rises during an altcoin pump, it may suggest short-term exit liquidity or late-cycle euphoria. If ETH.D and BTC.D climb simultaneously, it can point to uncertainty in leadership or a transition between market phases. Traders use these divergences as confirmation tools for pivots, especially when combined with liquidity flow data, sentiment markers, or volume surges. Monitoring divergence across dominance charts helps identify when to lean risk-on, derisk, or rebalance across layers of the crypto stack.
ƒöü Capital Rotation Map (Crypto Cycle Flow)
Capital typically rotates through the following phases during a bull market cycle:
| Phase | Rotation Target | Typical Timing |
|---|---|---|
| 1 | Bitcoin (BTC) | Early cycle ÔÇô risk-off accumulation |
| 2 | Ethereum (ETH) | Post-BTC breakout ÔÇô Layer 1 adoption |
| 3 | Large Cap Altcoins | ETH plateau ÔÇô rotation begins (XRP, ADA, SOL, etc.) |
| 4 | Mid & Small Cap Altcoins | Speculative mania phase |
| 5 | NFTs, Memecoins, GameFi | Peak euphoria ÔÇô unsustainable risk |
| 6 | Stablecoins / Fiat | Exit phase ÔÇô capital preservation |
Interpretation: Smart money rotates early, exits late. Retail enters around Phase 3ÔÇô5. Watch for signs of rotation reversal (e.g., stablecoin inflows rising, BTC dominance rebounding) as a cue for protecting gains or reallocating to safe assets. Dominance divergence between BTC, ETH, and altcoins often precedes a capital rotation event.