Image Reference: https://www.tradingview.com/chart/BTC.D/f3LSMFft-Bitcoin-Dominance-Cheat-Sheet/
Crypto traders are seeking for tools to study the market and make smart investments, like the Bitcoin dominance index. This indicator evaluates market circumstances to determine Bitcoin and Altcoin trends. BTC dominance measures how much of all crypto’s value is Bitcoin.
How does BTC dominance work?
The rule of BTC dominance is that cryptocurrencies lose value as BTC gains market share. Altcoins rise if BTC’s market share falls. Bitcoin dominance is sometimes called BTC dominance ratio or index.
BTC dominance may be determined by comparing its overall market capitalization to all other cryptos. Crypto market capitalization is its overall value. Market capitalization of crypto is calculated by multiplying the number of coins in circulation by their price.
Historical view of Bitcoin dominance
Bitcoin, the first cryptocurrency, dominated the market for 99%.
Years later, Bitcoin dominated the nascent crypto market at 95%. Crypto has a $7 billion market worth in 2016.
Due to the ICO boom, trading community started using the indicator in 2017. Bitcoin dominance was first monitored by TradingView and CoinMarketCap during the even greater altcoin bull market of 2021, making it a prominent statistic for crypto market information.
Bitcoin’s dominance dropped to 37% in 2018 as altcoins like ETH, XRP, SOL, ADA, and others gained popularity. The next year, cryptocurrencies plummeted, restoring BTC dominance to 71%.
Bitcoin had 53% market share as of October 2023.
The significance of Bitcoin Dominance in crypto
When Bitcoin dominance grows, individuals buy Bitcoin, sell altcoins, or both. Because Bitcoin is considered the top safe-haven crypto, increased BTC dominance may imply risk-off attitude.
This is why the crypto fear and greed index, a market sentiment indicator, uses BTC dominance. The index measures investor enthusiasm or pessimism-induced asset overvaluation or undervaluation.
Investors might use Bitcoin’s dominance as a buy or sell indication while considering other considerations. Investors may better decide whether to invest in Bitcoin, altcoins, or crypto in general by watching BTC dominance and price trends.
Bitcoin dominance factors
Bitcoin supremacy is affected by crypto ecosystem and global economic and financial factors.
Macroeconomic reasons that may affect BTC supremacy include:
Regulatory changes:Regulators’ remarks or laws favoring Bitcoin over altcoins might attract investors, expanding dominance.
Market attitude:Fear in established financial markets may boost Bitcoin supremacy as investors dump riskier cryptocurrencies.
Monetary policy:Bitcoin benefits from quantitative easing, which increases financial system liquidity.
In search for security:As investors migrate cash outside the established financial system, certainty-shattering events like the early 2023 banks crises may boost Bitcoin’s price and power.
Crypto-specific factors
Altcoins:If new cryptocurrencies arise and gain popularity, BTC may lose supremacy.
Technological developments:A successful Bitcoin technology upgrade might boost investor confidence and BTC domination.
Trader estimating:Bitcoin supremacy may fluctuate with altcoin demand. Dominance rising with Bitcoin’s price is negative for altcoins, whereas declining dominance with a rising BTC price is optimistic.
Bitcoin domination is a significant crypto market indicator. Bitcoin’s safe haven reputation and position as the leading crypto asset make its market value a good indicator of market mood and investor behavior.
BTC dominance has been an important statistic since its 2017 launch, affected by several crypto and non-crypto variables.