What is BTC Dominance? How to use it in your Crypto Trades

Introduction

Bitcoin’s percentage of the total value of all cryptocurrencies is known as Bitcoin dominance or BTC dominance. Its fundamental tenet is that the value of altcoins will decline as BTC’s dominance grows. Alternately, the value of altcoins will rise if BTC’s dominance falls. The BTC dominance ratio and the BTC dominance index are other names for BTC dominance.

By comparing Bitcoin’s total market capitalization to the combined sum of all other cryptocurrencies, one may gauge the extent of Bitcoin’s dominance.

The overall market value of cryptocurrencies is referred to as “crypto market capitalization.” The total number of coins in circulation multiplied by their current price value yields the market capitalization of a cryptocurrency.

A crypto token’s value can also be determined by factors other than its price. Investors use market capitalization to compare the worth of several cryptocurrencies and gain a more comprehensive picture. Market capitalization is a crucial indicator of how much a cryptocurrency’s price may increase and whether or not it is secure to purchase compared to others.

About BTC Dominance

The ratio of the market capitalization of Bitcoin to all other cryptocurrencies is known as BTC Dominance or BTC Domination. You can use this statistic to evaluate whether an altcoin is trending upwards or downwards about BTC. The value of altcoins relative to BTC often declines when BTC dominance increases and vice versa.

Most frequently, a bullish market will experience a steep and persistent fall in Bitcoin Dominance. The market capitalization of altcoins typically rises above that of bitcoin during a prolonged bull market. A bullish or bearish market, however, doesn’t always have an impact on Bitcoin’s Dominance. This is because BTC Dominance is a relative phrase and not an absolute one.

The dominance of Bitcoin would probably not alter even if the prices of Bitcoin and other cryptocurrencies fell.

How to trade BTC dominance

When trying to trade Bitcoin domination, there are many things to consider. First, be aware that even one cryptocurrency with considerable demand can cause Bitcoin’s dominance to decline. This interest in one particular alternative coin does not imply that other alternative currencies will see growth. It can take some time for the market to stabilize.

It’s also a good idea to think about specific popular cryptocurrencies’ intentions and whether or not those intentions will have a long-lasting effect on the altcoin market. For instance, a stablecoin can temporarily witness a substantial increase in volume.

However, given that stablecoins can be a simple way to onramp cash into the cryptocurrency market, consumers may invest in said stablecoin solely to transfer those monies to Bitcoin.

This behaviour may cause Bitcoin’s dominance to fluctuate quickly and adversely affect short-term trades. Fear of losing out is another element that can cause erratic short-term fluctuations in Bitcoin supremacy (FOMO).

The crypto market always gets new coins. Some of these brand-new altcoins that are entering the market cause many buzzes, attracting a lot of money to the altcoin side of things and disproportionately reducing Bitcoin’s dominance.

However, many new cryptocurrency projects frequently fail to live up to the expectations or even turn out to be frauds, forcing consumers to withdraw their holdings as quickly as they put them in. In that scenario, Bitcoin might regain its prior position of supremacy.

The Bitcoin dominance ratio’s extremes should also be taken into account. Before altcoins entered the market, Bitcoin’s market share was above 90%. However, supporters point out that given the presence of altcoins in the current market, it is unexpected for Bitcoin’s dominance to reach that level once more. But it’s impossible to say for sure because BTC’s supremacy might return if other nations implement Bitcoin as legal cash like El Salvador.

In reality, as altcoin initiatives continue to gain traction among the general public, Bitcoin’s dominance is much more likely to hit new lows than new highs.

Consequently, traders should note whether Bitcoin dominance is heading toward a record high, as that could indicate a good point at which BTC dominance may encounter resistance. On the other hand, consumers should pay attention to how the altcoin market responds as BTC dominance sinks to new lows.

Factor influence BTC dominance

Due to the scarcity of altcoins that attracted investment, Bitcoin’s dominance in the early days of cryptocurrency would typically be around 95% or higher. But when interest in other altcoins grew, Bitcoin’s supremacy waned.

For instance, investment in altcoins grew when the ICO (initial coin offering) mania erupted in 2017, and Bitcoin dominance fell to a low of 35%. As many of those altcoins collapsed starting in 2018, Bitcoin’s market share rose to a peak of nearly 70%.

Beginning in 2021, Bitcoin’s dominance started to decline as an investment in altcoins surged in response to bad news about Bitcoin’s energy consumption and China’s ban on Bitcoin mining, which put pressure on investment.

If we look closely at the equation that generates the ratio known as Bitcoin dominance, we can see that it includes these two factors:

• The value of Bitcoin
• The market capitalization of the whole cryptocurrency industry

These are the two key factors that affect the dominance ratio of bitcoin.

Calculating BTC dominance

Using the BTC dominance definition, the number can be easily calculated. But first, divide the market capitalization of all other cryptocurrencies by the market capitalization of Bitcoin.

Use the following formula to calculate BTC Dominance:

The market capitalization of Bitcoin (BTC) divided by the market capitalization of all other cryptocurrencies equals Bitcoin dominance.

Here’s an illustration:

Assume that Bitcoin has a market capitalization of USD 75 billion and that the total market value of all other cryptocurrencies, excluding BTC, is USD 100 million. In that situation, the computation shows that BTC has 75% dominance.

Bitcoin Market Share = 75/100, or 75%

Conclusion

The ratio of Bitcoin to all other cryptocurrencies is a helpful indicator of market movements. For instance, a trader can decide based on patterns within the balance and the price of Bitcoin whether the stronger trend is with altcoins or Bitcoin.

The dominance of Bitcoin is not without flaws. However, for the time being, it might help traders comprehend the conditions of the cryptocurrency market.