Crypto Dictionary

Bitcoin Dominance

In this article we will explore Bitcoin's role as the "king of cryptocurrencies," its dominance in the market, and the factors affecting it.

Bitcoin is the oldest and first cryptocurrency in the world. Many refer to Bitcoin as the "king of cryptocurrencies," as it remains the largest crypto asset by market cap. There are over 22,000 cryptocurrencies in circulation. However, Bitcoin is the original cryptocurrency that paved the path for all of these crypto assets and the Web3 realm.
No matter how many cryptocurrencies come up, Bitcoin can never be dethroned. In other words, we can also say that Bitcoin is dominant. Since BTC is a leader, other altcoins tend to have a recurring pattern in comparison to Bitcoin.
Market conditions have developed some recurrent patterns that traders have noticed. Some people started to model their trading behaviour after BTC dominance.
In particular, it is thought that BTC dominance can shed light on the general market trend that is currently in play. Let us take a deeper look at what Bitcoin dominance is and its importance.

Key Takeaways

  • Bitcoin is the original and largest cryptocurrency by market cap, and is referred to as the "king of cryptocurrencies".
  • Bitcoin dominance is defined as Bitcoin's share of total cryptocurrency market capitalization.
  • The market conditions of Bitcoin can indicate the general trend of the market.
  • Factors such as bear/bull markets, and new coins entering the market can affect Bitcoin's dominance.
  • Bitcoin dominance should be taken with caution and should be supplemented with other technical and fundamental indicators.

What is Bitcoin's Dominance?

Bitcoin dominance is defined as Bitcoin's share of total cryptocurrency market capitalization. It indicates whether altcoins are outperforming, underperforming, or performing similarly to Bitcoin. It is calculated by dividing the total market capitalization of all crypto assets by the market capitalization of Bitcoin.
As a tool, it can provide insight into how the virtual currency space is playing out and where it is headed. Assume the total market capitalization of all cryptocurrencies is currently $200 billion. Bitcoin's dominance would be 60% if its market cap constituted $120 billion of this. 

A Brief History of Bitcoin Dominance

At press time, according to the data from TradingView, Bitcoin dominance stands at 42%. However, this was not the case a few years ago. When altcoins began popping out from all directions and as they gathered more investors' attention, Bitcoin lost some of the attention and also the dominance.
When the initial altcoin season began in 2017, the entire situation started to change. In February of that year, BTC had an 85.4% market dominance. However, over the span of a few months, Bitcoin's market dominance drastically decreased as a wave of initial coin offerings (ICOs) significantly increased the market capitalization of the sector.
By June, BTC's dominance had decreased to just 40%, and liquidity had shifted to other altcoins. 

Factors Affecting BTC Dominance

There are some key factors that affect Bitcoin's dominance. Let us take a look at these:

Bear or Bull Market

Stablecoins have become more and more well-liked over the past few years, which has put sustained pressure on BTC's hegemony. Stablecoins are frequently used by cryptocurrency traders and investors to lock in profits, particularly during a bear market. BTC dominance may decline as money leaves the BTC market and invests in stablecoins. 

In a bull market, the inverse is probably true. When the market is strong, traders may be enticed to transfer value out of stablecoins and into more erratic assets with more trading opportunities.

New Coins Every Day

When new coins enter the market, their popularity can rise quickly, reducing BTC's dominance. Because Bitcoin is "fighting" for its dominance against other alts, the simultaneous rise of several well-known altcoins could have an impact on it.

Should You Rely on Bitcoin Dominance?

Investors should be aware that people occasionally make impulsive trades in an effort to make a quick buck due to the Fear of Missing Out (FOMO).
Additionally, some analysts have noted that Bitcoin dominance doesn't quite account for all the BTC that has been misplaced as a result of dead wallets, forgotten private keys, and hacks.
Some analysts advise using caution when interpreting Bitcoin dominance. Others warn that it ignores the substantial liquidity of Bitcoin. The dominance of Bitcoin may be challenged by an altcoin with a $3 billion valuation, but this figure may be inflated. 

Final Thoughts

Compared to the early 2010s, the cryptocurrency realm is now more diverse and rich.
BTC's dominance can give you a gentle nudge as to how much of your money you should put toward altcoins. Just make sure you use multiple types of analysis and don't put all your eggs in one basket.
In order to supplement Bitcoin's dominance, it is wise to consider additional technical and fundamental indicators. This would also be better in terms of cutting down on risk.


What factors influence Bitcoin Dominance?

Factors influencing Bitcoin Dominance include the performance of other cryptocurrencies, Bitcoin's market capitalization, and the overall demand for cryptocurrencies.

Why is Bitcoin Dominance important?

Bitcoin Dominance is important because it gives an indication of the overall crypto market and shows the strength of Bitcoin in comparison to other cryptocurrencies.

What is a high Bitcoin Dominance level?

Generally, a high Bitcoin Dominance level is considered to be over 70%.

What is a low Bitcoin Dominance level?

Generally, a low Bitcoin Dominance level is considered to be under 50%.

What are the pros and cons of a high Bitcoin Dominance?

A high Bitcoin Dominance indicates a strong and stable market for Bitcoin, and can also result in more competitive prices for other cryptocurrencies. On the other hand, it can stifle innovation in the cryptocurrency market, as other cryptocurrencies are less likely to be adopted.

Disclaimer: The content of this piece reflects the writer's opinion. This article is not intended to provide financial advice and is meant solely for entertainment and educational purposes. Investing in cryptocurrency involves significant risk. Capital is at risk, and returns are not guaranteed. Always conduct your own research.

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