BTC dominance serves as a valuable tool for illuminating shifts in market cycles. Many traders find it beneficial for fine-tuning their trading strategies, while others leverage it to effectively oversee their diversified portfolios. It’s essential to keep in mind that BTC dominance doesn’t offer a definitive guarantee of Bitcoin’s or any other cryptocurrency’s performance. Instead, it functions as an informative guide, aiding traders in crafting their trading strategies. Occasionally, the swift rise in popularity of new coins entering the market can precipitate a decline in BTC dominance. However, there’s also the possibility that these altcoins might lose their appeal once the initial hype subsides.

What is Bitcoin Dominance Index?

There are reasons to incorporate the metric in your analysis, and reasons not to. Their argument is that the true market capitalisation of Bitcoin (and alts) may therefore be much lower. An investment strategy focusing on capital growth by dynamically managing a diverse cryptocurrency portfolio.

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To understand this formula thoroughly, we must first grasp the concept of market capitalisation. The market cap of any tradable asset simply calculates the total fair value of all available units. Bitcoin is the largest and most prominent cryptocurrency on the market currently. It holds significant influence over other digital assets, making it a crucial factor to monitor.

• As the crypto market began to lose a bit of steam in March, Bitcoin dominance started climbing again.
• There were quite a few attempts to create a stronger financial value exchange system than the traditional one much before BTC became a thing.
• Whenever the conventional markets experience volatility or uncertainty, many investors prefer to sell their crypto investments and return to the safer currency form.
• Many years ago, Bitcoin had 100% of the entire crypto market share, as there was a period in which it was the only tradeable asset.
• The overall share of stablecoins, such as Tether, as well as Ethereum increasingly start to resemble that of Bitcoin, however.
• As the entire cryptocurrency ecosystem expands, the total market cap encompasses the combined value of all crypto assets.
• Long-term traders can benefit from Bitcoin’s long-term price uptrend by purchasing and holding on to the asset.

Various Factors That Exert Influence on the Dominance of Bitcoin (BTC)

Starting in 2017, however, thanks to the ICO boom, the indicator began being used amongst different trading communities. It is also worth noting that BTC dominance of the market cap does not reflect its real value, nor does it mean a sudden influx of money to the market. Rather, it is a metric based on the circulating supply and current market price, which may indicate market sentiment. Bitcoin’s market cap is calculated by multiplying the number of bitcoins in circulation by its current market price per coin. It should be combined with other indicators and analytical tools, considering market conditions, news, fundamental and technical analysis. Bitcoin dominance is a metric that reflects the share of Bitcoin’s market capitalization relative to the total market capitalization of all cryptocurrencies.

• In fact, more than 15,000 of them — including major brands like Microsoft, AT&T, and Twitch — now accept BTC for goods and services.
• Traders can use these percentage shifts as clues to predict when money may rotate between Bitcoin as the steady blue-chip vs. riskier emerging projects with crypto cycles.
• Bitcoin’s blockchain is very prone to forking, which means that it can be divided into two blockchains.
• It is an indicator that is often used to gain insight into the current general market trend and make trading decisions.

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BTC dominance will last as long as Bitcoin remains the most valuable digital currency. On the other hand, decreasing Bitcoin dominance is often due to a spike in altcoin interest. This occurs when the buying power for cryptocurrency is at its highest, and the market is quite bullish. BitDegree aims to uncover, simplify & share Web3 & cryptocurrency education with the masses. Join millions, easily discover and understand cryptocurrencies, price charts, top crypto exchanges & wallets in one place. In comparison, by 2017, it had reduced to 85.4%, while its main market competitor ETH had a 5.7% at the time.

How is Bitcoin dominance calculated?

All this suggests that BTC dominance, although superior to all other cryptocurrencies, is nevertheless not unconditional. It simplifies the complex dynamics of the crypto market and doesn’t account for individual performance or characteristics of different altcoins. It also doesn’t consider factors such as liquidity, lost or inactive coins, or the utility and adoption rates of different cryptocurrencies. Market capitalization, or market cap, is the total value of a particular cryptocurrency at a specific point in time.

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Bitcoin has a relatively stable status and functions as the preeminent crypto asset. Therefore, estimating its market cap in relation to the market cap of other cryptos lets you understand investors’ behavior and market sentiments. At any one time, a multitude of variables contribute to Bitcoin’s market dominance.

Downsides Of Using Bitcoin Dominance

Bitcoin's market capitalization is currently $ 1.17T while the total crypto market cap is $ 2.08T. When the Bitcoin dominance is high, it indicates that Bitcoin holds a significant share of the total cryptocurrency market cap. Conversely, when Bitcoin dominance is low, it means that altcoins are gaining traction and capturing a larger share of the market cap. This is used to gauge asset overvaluation or undervaluation due to investor exuberance or pessimism. By analyzing BTC dominance and price trends, investors can make informed decisions about allocating more to BTC or altcoins.

Bitcoin (BTC)

For example, if hundreds of new altcoins grow exponentially in market cap, the Bitcoin dominance ratio would dilute. Say the index eventually stabilized at a percentage of 10 – suddenly, all previous data is without precedent and nearly useless. Bitcoin dominance is a metric that simply measures the value of existing Bitcoins in the market relative to the overall crypto market cap. While real-time data requires constant updates, as of the latest available data, Bitcoin dominance, which is often referred to as its market share, hovers around 49%.

The Interplay of Total Crypto Market Cap and Bitcoin Dominance

The market value of the second largest stablecoin, USD Coin, is about $33 billion. Some traders use a variant of Bitcoin dominance called the Real Bitcoin Dominance Index, which only takes into account coins that rely on the Proof of Work consensus mechanism. Since Bitcoin often dictates the rest of the marketplace, BTC dominance becomes a necessary metric to measure its impact at any time. The most vital aspect of Bitcoin Dominance is that it enables you to determine whether alternative currencies are experiencing an uptrend or a downturn relative to BTC.

Due to the cryptos volatile nature, Bitcoin’s dominance isn't fixed and is ever changing. For instance, at the end of March 2023, Bitcoin’s market cap was about $543 billion. However, it’s important to note that bitcoin dominance should not be the sole factor guiding investment decisions. Other fundamental and technical indicators, as well as individual risk preferences, should be considered when formulating a comprehensive trading strategy.

The number of BTC in the market is close to reaching its peak and has been stable for years. If its market cap decreases faster than the market cap of all other cryptocurrencies, then Bitcoin's dominance decreases. In February 2017, Bitcoin dominance (BTCD) was at 85.4%, with Ethereum (ETH) taking 5.7% of the market share and Ripple (XRP) taking the other 1.1%.

Other technical analysis tools are used to identify trends, momentum, potential reversals, and trading ranges in the price of a specific asset. With the growth in the number of cryptocurrencies, there arose a need for a metric to understand Bitcoin’s market position relative to the entire market. If the total market cap of cryptocurrencies is $1,000,000 and the market cap of Bitcoin is $500,000, then the Bitcoin dominance would be 50%. While this formula can give a much clearer picture of BTC’s standing within the industry, it is far harder to calculate.

The relationship between Bitcoin dominance and market cap

There are four possible outcomes when considering the relationship between BTC price and dominance metric. The BTC dominance ratio can change due to numerous variables and circumstances unravelling within and outside of the crypto market. Through numerous challenges, Bitcoin has always managed to maintain a relatively strong and healthy market capitalisation, while other altcoins entered and exited the market due to various complications. To further visualise this concept, let’s swiftly calculate Bitcoin’s market cap by utilising the circulating supply and Bitcoin’s price. At the moment of writing, BTC’s price currently sits at approximately $42,000.

As the cryptocurrency market continues to evolve, understanding BTC Dominance can be a powerful strategy for navigating the complex world of digital assets. Despite these limitations, BTC dominance remains a valuable tool for gauging market sentiment, guiding investment strategies, and understanding market cycles. It’s a metric that can provide valuable insights for both seasoned traders and newcomers to the crypto market. BTC dominance is a metric that provides insight into the market share of Bitcoin relative to the cumulative market share of all other cryptocurrencies combined.

• It is primarily due to the development of altcoins, which have captured a significant capitalization share.
• It’s a barometer of market sentiment, often indicating whether investors are favoring Bitcoin or altcoins.
• Follow Paybis blog closely to learn about more such market indicators that can help you in your crypto journey.
• Bitcoin dominance is the ratio between the market capitalization of Bitcoin to the total market cap of the entire cryptocurrency market.
• If the total market cap of cryptocurrencies is $1,000,000 and the market cap of Bitcoin is $500,000, then the Bitcoin dominance would be 50%.
• So, whether trading strictly Bitcoin or diving into altcoin assets, keeping a pulse on Bitcoin dominance keeps traders informed on where capital is concentrating next within the dynamic crypto economy.

However, with the addition of more altcoins, the dominance of Bitcoin has been negatively impacted, especially as these assets increase in adoption and price. This formula compares the market capitalization of bitcoin to the combined market capitalization of all cryptocurrencies. By dividing the market cap of bitcoin by the total market cap of the crypto market, we obtain a percentage that represents bitcoin’s dominance over the entire space.

Why is BTC dominance important?

A good way to estimate the size of the Bitcoin market is to compare BTC with other major asset categories such as gold, U.S. stocks and the U.S. dollar. We can do this by adding together the estimated market capitalizations of these asset classes and calculating the "market share" of each. Currently, Bitcoin has a 1.47% share when compared to gold, the U.S. stock market and the https://crypto.com/university/what-is-bitcoin-dominance U.S. dollar. Large-cap cryptos typically have a market cap of $10 billion, while mid-cap ones offer more volatility and growth potential. With their volatility and riskiness, small-cap cryptocurrencies may have the potential for short-term growth. In January 2024, Bitcoin’s market cap was $843 billion, primarily due to its position as the leading crypto coin in the market.

For example, suppose the blockchain gains traction as a logistics and supply solution in the future. In that case, traders might start piling assets into crypto from this sector instead of BTC. A major factor in a decreasing trend in Bitcoin dominance is Initial Coin Offerings (ICOs), which came into vogue in 2017.

The easiest way for Bitcoin’s market capitalization to increase is when the price of bitcoin goes higher. Paying attention to the entire crypto market cap is diffuclt at times, so by monitoring the market cap of BTC, and the BTC dominance, you can get a gauge of where the market may go in general. A larger dominance % implies that Bitcoin dominates the market more strongly, which frequently denotes a more bearish outlook for the whole crypto ecosystem. On the other hand, a diminishing dominance percentage can signify a rise in interest in competing cryptocurrencies. BTCD metric is used to understand crypto markets, identify promising projects, and balance portfolios.

At the current rate, Bitcoin’s market cap is over $1 trillion, with a market cap of approximately 19.6 million BTCs. Bitcoin dominance is concerned with Bitcoin’s market share relative to the entire cryptocurrency market. It doesn’t directly consider the price movements of Bitcoin or other individual cryptocurrencies. Bitcoin dominance is also an important metric when comparing different cryptocurrencies. Generally speaking, Bitcoin is the most dominant cryptocurrency, followed by Ethereum and other altcoins. However, certain altcoins have been able to outpace Bitcoin in terms of market capitalization, such as Ethereum.

However, it was the emergence of meme culture that propelled Bitcoin into the mainstream consciousness. Memes, known for encapsulating complex ideas into easily shareable formats, played a crucial role in popularizing Bitcoin and engaging wider audiences. In this article, we'll take a look at what Bitcoin dominance is, the key factors that affect it, the advantages and disadvantages of Bitcoin dominance, and more. Please note that the availability of the products and services on the Crypto.com App is subject to jurisdictional limitations. Crypto.com may not offer certain products, features and/or services on the Crypto.com App in certain jurisdictions due to potential or actual regulatory restrictions. So, before making any final investment decisions, be sure to double-check your conclusions with your peers or use complementary ratios to acquire more certainty.

BTCD trading offers a lucrative way to make money in the virtual money market. Long-term traders can profit from Bitcoin’s long-term uptrend, while short-term traders can profit from Bitcoin’s short-term price fluctuations. However, in the same year, the index dropped to 37% due to Ethereum’s success in the initial coin offering (ICO) mania and increased interest in altcoins. Bitcoin’s price briefly reached an all-time high in December 2017 but remained low due to decreasing confidence and negative sentiment.

In that case, investors who are heavily invested in altcoins may consider selling some of their positions and moving into Bitcoin. Cryptocurrency traders use the Bitcoin dominance chart to get a pulse on the crypto market. BTC dominance is commonly used to identify the altcoin season - periods when altcoins outperform Bitcoin.