TDLR
Bitcoin dominance is a metric for comparing Bitcoin’s market capitalization to all other coins, called altcoins. The calculation is done by price and number of coins in circulation.
When there’s an upward movement in BTC dominance, altcoins’ value tends to dip, when there’s a downward movement, altcoins’ value increases.
The dominance is affected by market trends, the introduction of new coins, and supply and stablecoin popularity. Experts forecast it will decline gradually as more altcoins enter the cryptocurrency market.
Bitcoin remains the only crypto to affect the dominance of other cryptocurrencies. You can find the chart on CoinGecko and the index on Tradingview. It also provides information on other coins in circulation.
Introduction
Bitcoin is the most popular cryptocurrency in the world. Since its launch on January 9, 2009, cryptocurrency has dominated the market. This article examines everything you need to know about Bitcoin dominance.
What is Bitcoin dominance?
Bitcoin dominance is comparing Bitcon’s total market cap to alternative coins or altcoins. Altcoins are cryptocurrencies other than Bitcoin (BTC). Comparing BTC dominance with that of altcoins can help you identify investment opportunities.
Market capitalization is the total value of assets in circulation. For Bitcoin, it means the number of BTC mined so far. It also takes into account the current price.
For example, if there are 20 500 000 BTC in circulation, and the current price is $16,123, its total market capitalization or cap will be calculated to be 20 500 000 x $16 123 = $330,000,000,000 billion or $331 billion.
Ideally, when BTC dominance goes up, altcoins lose value. When Bitcoin dominance reduces, altcoins gain value. As such, you’ll want to invest in Bitcoin when its dominance is upward. Similarly, you’ll want to invest in altcoins when their value reduces.
This explains why the whole cryptocurrency market cap index tends to follow Bitcoin. Besides, BTC is the largest cryptocurrency and the most widely used.
How to Use Bitcoin Dominance in Trading
You can use Bitcoin dominance to make better-informed trading decisions. Let’s look at a few ways:
Spotting Altcoin Season
You can use declining bitcoin dominance to identify the “altcoin season.” Ideally, there has been an emergence of altcoins that have grown in popularity than bitcoin. This has caused its dominance in assets itself to reduce.
When the altcoins outshine Bitcoin, it is the same period often called “alt season.” However, like the first altcoin season, as with any season, it is temporary. As such, traders can monitor BTC dominance to balance their investment, leading to larger profit margins.
Combining Bitcoin Price with Dominance
Most investors will use BTC dominance and price to make informed trading decisions in the cryptocurrency industry. Here are some of the ways you can use the two when trading.
- A rise in the bitcoin rate and a fall in bitcoin dominance can signal a bull market in altcoins.
- A rise in Bitcoin dominance and price can signal a bull market.
- A bitcoin rate and dominance fall can signal a decrease in total market capitalization.
- A rise in bitcoin dominance and a fall in bitcoin price can signal an altcoin bear market.
While this is not the rule of thumb, historical data tends to support a correlation between dominance and price, and you can incorporate it into your own research and trading strategies.
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Factors Affecting Bitcoin Dominance
As you’d expect, bitcoin dominance is affected by many factors. Let’s look at them.
Initially, it was high compared to the rest of the cryptocurrency market, registering 80% to 95%. However, its authority has been reducing since the introduction of altcoins such as Ethereum (ETH).
When ETH and other altcoins were introduced in 2017, bitcoin’s dominance fell to its lowest point, 35%, but it regained market share once we went into the bear market of 2017-2018. Since then, bitcoin’s dominance has gradually declined due to regulations and the emergence of hundreds of altcoins.
Let’s look at some crypto market factors that affect BTC dominance.
Market trends
Before 2017, when altcoins exploded, it was not uncommon for Bitcoin’s dominance to hit 90%. It would occasionally hit 95%. As altcoins became lucrative investment options, the undivided attention that BTC enjoyed declined.
As you know, Bitcoin and blockchain technology were created to change how we carry out transactions. Initial Bitcoin developers stood by this vision, which saw a breakaway group that created Bitcoin Cash.
Current altcoins do more than facilitate disruptive transactions. They are involved in gaming, gambling, art, and other sectors that are subject to disruption. And as you’d expect, market trends cause investors to rally for a certain altcoin.
For example, there’s no doubt that NFT‘s explosion caused Bitcoin’s dominance to tank as people invested in NFT-related altcoins. There are over 35,000 cryptocurrencies on the market. It means investors have many options, allowing them to diversify their portfolios. As such, it may reduce gradually.
Bear and bull markets
Over the last five years, there has been a gradual demand for stablecoins. A stablecoin is usually money with a value equal to that of a more stable asset such as gold or the US dollar.
This demand has put enormous pressure on Bitcoin’s dominance. Most investors will use stablecoins in a bear market to protect their investments when prices fall. Also, as new funds enter the crypto market, the supply and liquidity of the cryptocurrency market increase as BTC dominance reduces.
During a bull market, traders may move their investments into more volatile assets such as Bitcoin or other altcoins. This increases the market cap.
Traders will convert altcoins and bitcoin into stablecoins during bear markets to protect their profits and capital. Likewise, they’ll convert their profits and capital into stablecoins in a bull market for easier entry and exit of trades.
Introduction of new coins
As you’d guess, new entrants in the cryptocurrency market tend to gain popularity quickly, causing Bitcoin’s market cap and dominance to decrease. Moreover, BTC tends to be against other cryptocurrencies. As such, introducing a few popular altcoins can significantly harm Bitcoin’s market share.
However, if history is anything to go by, such digital assets tend to lose popularity after a certain period. This leads to a rise in Bitcoin dominance.
What is a Bitcoin Dominance Chart?
A Bitcoin dominance chart is a representation of BTC’s dominance. It uses dominance as an index, allowing investors to make informed trading decisions. You can find it on the CoinGecko website and another chart on Tradingview.
While the chart’s top metric was developed in 2017, it gained mainstream attention in 2021. Investors see it as one of the most reliable indicators than technical analysis.
Uses of Bitcoin Dominance Chart
While not a conventional trading indicator, the chart has several uses, including the risk aversion index and market overview. Often, the chart indicates how risk-averse investors are. It also indicates bitcoin market capitalization and liquidity.
Future of Bitcoin Dominance
Bitcoin’s dominance will continue to affect total crypto market capitalization for the foreseeable future. However, as decentralized applications and finance gain traction, it is bound to reduce. This is because BTC does not support such apps.
That said, blockchain technology experts believe Bitcoin’s dominance will remain relevant in some fields since all smaller tokens in the market are compared against Bitcoin. This is especially true for those tokens that serve the same purpose as Bitcoin: store of value and P2P transactions.
Conclusion
Bitcoin dominance is the difference between Bitcoin’s market dominance and the altcoin market cap. It uses the BTC price and the number of coins in circulation. You can use it to identify the best seasons to invest in Bitcoin or altcoins.
Today, the worldwide cryptocurrency market capitalization stands at $1.18 Trillion, reflecting a minor downtick of -0.37% in the last 24 hours and a more substantial decrease of -8.66% compared to last year. As of the current moment, Bitcoin (BTC) claims a market cap of $521 Billion, which accounts for 44.22% of the total crypto market, illustrating its dominant position.
The dominance of BTC is defined as the proportion of Bitcoin's market cap to the total crypto market cap, which includes all existing tokens in the crypto landscape. It is a significant metric that helps measure Bitcoin's supremacy over other cryptocurrencies, also known as altcoins.
One can't talk about Bitcoin without mentioning Satoshi Nakamoto. Nakamoto, the elusive creator of Bitcoin, is widely believed to be the largest holder of Bitcoin. The pseudonymous entity is estimated to possess around 1,000,000 BTC, translating to a staggering worth of approximately $27.13 billion.
Julia Zakharchuk
Julia is a professional crypto and blockchain writer known for her insightful YouTube channel "MoneyFest." She showcases her dynamic presentation skills as a host and moderator at blockchain conferences. Julia drives also business development at ChainUp and advises UNITBOX, an innovative NFT renting protocol. With her exceptional expertise, Julia is a highly valued industry contributor and is set to make a lasting impact. We at Coinweb are lucky to have her on board.
