Whenever we are looking at the crypto market and cryptocurrencies in general, one term commonly shows up and that’s “Bitcoin dominance”. Bitcoin dominance is something that might not be a must-know term, but knowing it will make your market analysis much easier. Therefore we will be taking a look at this term and explaining what it means and why it matters.
What is Bitcoin Dominance?
Simply put, Bitcoin dominance is the ratio between Bitcoin’s market capitalization and the market capitalization of the whole crypto market. So, it tells us what percentage of the crypto market is taken up by Bitcoin and what percentage is taken up by other altcoins. This is an important metric to know because the whole crypto market somewhat follows the Bitcoin price and if there is some irregularity in Bitcoin’s dominance and it changes significantly, it means that there is something going on, and you might be able to take advantage of it. Up until 2017, Bitcoin’s Dominance was always over 80%, even having 95% in 2013 when other cryptocurrencies were not that popular yet. But when altcoins such as Ethereum started to pick up pace in 2017, Bitcoin’s dominance fell, and ever since then, it has an average dominance of around 45% to 50%, with lows going down to 33% and highs of 69%. Looking at this we can see the times when Bitcoin was the main cryptocurrency on the market and when it was behind other altcoins.
Why does Bitcoin Dominance matter?
While looking at it you might think that this is an insignificant statistic, as all it says is how much of the market is taken up by Bitcoin, but in reality, this tells us a lot. Whenever Bitcoin’s dominance shifts, you can tell what is trending, altcoins or Bitcoin. If you see Bitcoin’s dominance going up, it shows that the Bitcoin price is going to go up faster than altcoins such as Ethereum, meaning that it might be better to invest in Bitcoin. If you see Bitcoin’s dominance falling, it means more people are investing in altcoins, so it might be better to invest in altcoins. If this dominance is static and does not show high growth or falls, it gives an indication that the market is evenly distributed and prices are either going to go up or down at the same speed and then your investment decision just comes down to your personal preference. But we also need to mention that you should never make investment decisions based on this metric alone. For example, if Bitcoin’s dominance is going up, investing in Bitcoin will be a good decision, but there might be altcoins that are growing even faster, while others are falling, thus increasing Bitcoin’s dominance.
FAQs on Bitcoin Dominance
How to measure Bitcoin’s Dominance?
If you want to measure Bitcoin’s dominance, you simply need to take the market capitalization of Bitcoin and divide it by the market capitalization of the whole crypto market, this will give you Bitcoin dominance. To see it in percentages, simply multiply the answer by 100 and you will get the percentage. But there is no need to do it, as there are many online charts showing Bitcoin’s dominance in real time.
Is Bitcoin Dominance important?
Bitcoin dominance is not the most major statistic that will be a deciding factor when making an investment decision. But it does not mean that this is not a useful statistic to know. Knowing what Bitcoin’s dominance is at any given time, will give you a basic overview of the market and will show you what is in more demand right now, Bitcoin or altcoins. But remember, never make an investment or trading decision based solely on Bitcoin dominance, and always use it as a supporting statistic.