Understanding Dominance
Dominance refers to the relative valuation of Bitcoin, and a lesser extent, Ethereum, compared to the overall cryptocurrency market.
The CoinMarketCap’s Bitcoin Dominance Index tracks Bitcoin’s total market capitalization, about the total market cap of all digital assets.
Understanding its Significance and Market Sentiment
This metric highlights the foundational nature of Bitcoin as the first cryptocurrency and emphasizes its significantly higher value compared to other digital currencies.
Traders utilize this index to gauge sentiment within the crypto market.
The market cap of Bitcoin serves as an important indicator of investor sentiment.
Bitcoin Dominance Index
However, there are factors to consider when using the Bitcoin Dominance Index.
One such factor is the debate surrounding using the market cap as a metric.
This is due to a considerable portion of Bitcoin being dormant, consisting of coins sitting in unused or lost wallets or owned by individuals who have forgotten about them.
The substantial amount of dormant Bitcoin (estimated to be as much as 30% of all mined coins) can make a market cap an unreliable metric.
Bitcoin’s Market Capitalization
Nevertheless, Bitcoin’s market capitalization remains a powerful representation of the vast and expanding size of the world’s largest cryptocurrency, highlighting its significance relative to other cryptocurrencies.
While several projects aim to challenge Bitcoin’s dominance, some, like Ethereum, offer more advanced applications for blockchain technology through the use of smart contracts.