Bitcoin Dominance
● You may have heard the term Bitcoin dominance several times from professional traders. What does it mean? It’s pretty simple. If you divide the total market capital of Bitcoin by the total market capital of all cryptocurrencies and multiply the value by 100, you get Bitcoin Dominance. You can find the dominance of any coin by doing the same step.
At the time of writing the article, the BTC dominance is at 64 % and it has started reaching a resistance zone. ETH dominance is at 11 % and Tether’s dominance is at 4 %. A fall from this zone will be good for altcoins.
What happens when Bitcoin Dominance increase or decrease?
When BTC dominance increases, it means that the demand for BTC increases and that for altcoins decreases. When BTC dominance decreases, it means that the demand for altcoins increases and that for BTC decreases.
When BTC dominance increases, it means that investors in crypto are looking for a less volatile and safer investment. It is analogous to buying A-list stocks or YEN in forex or Gold in commodities. During market uncertainty, investors shift towards less volatile and highly liquid assets like BTC rather than investing in altcoins with low liquidity and market cap. There are multiple reasons for the high dominance of BTC which include: earliest digital asset, listed across all exchanges, completely decentralized, extreme media attention, etc. This is the reason most traders in cryptocurrency have begun their journey by BTC as the first cryptocurrency.
When BTC dominance decreases, it indicates the beginning of alt season. It is an indication that the profits earned from the rise in price of BTC will now be used to buy altcoins. A falling BTC dominance is a good sign for altcoins. Altcoins have a much higher probability of exponential gains given its low liquidity and high volatility compared to BTC. To give an example, it is far more likely for an altcoin like BAND to jump from 5 USD to 15 USD in a much shorter time frame than for BTC to jump from 10,000 USD to 30,000 USD in the same time frame.
Importance of Bitcoin Dominance
● Bitcoin dominance is an extremely important parameter for traders and investors.
● It marks the beginning or end of altcoins season.
● Here is a tabular summary of the relationship between BTC’s Dominance, BTC’s price and Altcoin’s price.
