3D animation could be dominating the anime industry as Knights of Sidonia(pictured above)is one of animes first 3d television series.So does this mean hand drawn animation is gradually fading?
No, I don't believe so. 3D Animation is not preferred over the drawn-out 2d. 3D is something totally different than anime & cartoon's drawn-out look. When they do work hand in hand, like in Ghilbi films, that's good.
Japan's method of animating is quite outdated. They are one of the only still using cels. The act of drawing out each frame on a cel (Cels, are material that can be drawn upon & stacked for an animation effect). Then digitized on to computers to be colored & shaded. Sometimes will still see coloring by hand. Mostly for celebration reasons or special occasions e.g: Little Witch Academia.
Although that could all just be done on computers, they choose not to do it. I'm assuming transition period would affect everyone "now". Though it would be great for the future.