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What is Dominance and how is it used in the digital currency market? One of the criteria for measuring the state of the Bitcoin market and other altcoins is the dominance criterion. In this Pooyan Music post, we will discuss the concept of this measure in detail.
Bitcoin dominance is a measure of its market value as a share of the entire crypto market.
This indicator plays an important role in evaluating the overall current state of crypto.
Investors often use Bitcoin Dominance to choose an investment strategy and allocate their portfolio.
Bitcoin is the #1 cryptocurrency by market cap and always has been. The price of Bitcoin, which accounts for a large portion of the total value of crypto, has a huge impact on the rest of the market.
As the crypto market fluctuates, so does Bitcoin’s share of the total crypto market value. Paying attention to this metric gives traders and investors an idea of Bitcoin’s value in relation to the altcoin market and can help inform investment strategies.
Bitcoin dominance shows the ratio between the market value of Bitcoin and the market value of other digital currencies. In other words, it is a measure of Bitcoin’s share of the entire digital currency market.
To calculate Bitcoin dominance, simply divide the market value of other digital currencies by the market value of Bitcoin. For example, if Bitcoin’s market cap is $100 billion and the total crypto market cap is $200 billion, then Bitcoin’s dominance will be 50%.
As the first digital currency to be invented, Bitcoin was once responsible for 99% of the digital currency market.
Years later, Bitcoin accounted for 95% of the still very small crypto market. For example, in 2016, the market value of digital currencies was only about $7 billion.
However, since 2017, thanks to the ICO boom, this indicator has been used among various trading communities. But until the larger altcoin bull market in 2021, Bitcoin’s dominance was tracked by platforms like TradingView and CoinMarketCap, making the benchmark a popular way to gain insight into crypto markets.
In 2018, amid the growing popularity of altcoins such as ETH, XRP, SOL, ADA and many others, Bitcoin’s dominance dropped to 37%. The following year, as altcoins collapsed, Bitcoin’s dominance increased to 71%.
As of October 2023, Bitcoin dominance is around 53%.
When bitcoin dominance increases, it means that people are either buying bitcoins, selling altcoins, or both. Due to Bitcoin’s position as a safe digital currency, increasing Bitcoin dominance can indicate a sense of risk.
For this reason, Bitcoin dominance is used as an input for the Crypto Fear and Greed Index, an indicator of market sentiment. The purpose of this index is to measure whether assets are overvalued or undervalued as a result of investor saturation or pessimism.
Bitcoin dominance can be used by traders as a buy or sell signal, taking into account other factors. By looking at the rise or fall of Bitcoin dominance along with Bitcoin price trends, investors can help determine whether they should be allocating more to Bitcoin or more to altcoins, or perhaps short or long crypto in general. Get more confidence.
Factors influencing Bitcoin’s dominance exist both within the crypto ecosystem and the global economic and financial system as a whole.
Some macroeconomic factors that may affect Bitcoin dominance include:
Regulatory developments: If regulators issue statements or propose rules that favor Bitcoin over altcoins, this could persuade investors to buy Bitcoin and increase its dominance.
Market Sentiment: Fear in traditional financial markets can greatly affect Bitcoin’s dominance, as investors sell altcoins that they see as riskier.
Monetary Policy: Bitcoin tends to benefit from looser monetary policies such as quantitative easing that add liquidity to the financial system.
Seeking a safe haven: Disruptive events such as a banking crash in early 2023 can sometimes increase Bitcoin’s price and dominance as investors move capital out of the traditional financial system.
Some crypto-specific factors that may affect Bitcoin’s dominance include:
Altcoin Inventions: If new altcoins are launched and have rapid adoption rates, this could lead to a decline in BTC’s dominance.
Technology Developments: If Bitcoin undergoes a successful technology upgrade, this could lead to increased investor confidence and increased BTC dominance.
Traders’ Speculation: Bitcoin’s dominance may increase or decrease according to appetite for altcoins. If dominance increases with the price of Bitcoin, it is bearish for altcoins, while decreasing dominance as the price of Bitcoin increases is bullish for altcoins.
Bitcoin dominance has become a key statistical measure of the overall state of the crypto market. Because of Bitcoin’s secure position and role as the preeminent cryptocurrency asset, measuring its market value relative to other cryptocurrencies provides valuable insight into market sentiment and investor behavior. Bitcoin dominance can be influenced by many factors inside and outside of crypto and has become an important benchmark since its inception in 2017.
