Dominance is the ratio of Bitcoin's (BTC) market capitalization to the total cryptocurrency market capitalization. The ratio in Bitcoin Dominance refers to the weight of Bitcoin (BTC) in the cryptocurrency market. It is a measurement based on circulating supply and current market capitalization. The higher the percentage of Bitcoin dominance, the more dominant it is in the market. Looking at historical data, we see that Bitcoin's dominance was over 96 percent in 2013, but in 2018, it dropped to 32 percent. The reason for this decline is the increase in the trading volumes of other cryptocurrencies, especially Ethereum.
What Is Crypto Market Cap?
Crypto market capitalization is the total value of all cryptocurrencies that have ever been issued. To calculate crypto market capitalization, the number of tokens in circulation is multiplied by the current market price of a single token. In other words, crypto market capitalization is a rough measure of how stable a cryptocurrency can be.
The Relationship Between Bitcoin Dominance and Market Capitalization
The ratio of Bitcoin dominance is calculated based on Bitcoin's market capitalization and the market capitalization of the total cryptocurrency. The direction and shape of the total crypto market capitalization follow that of Bitcoin (BTC). This effect is because Bitcoin is a widespread and large cryptocurrency in the market.
Which Factors Affect Bitcoin Dominance?
The factors affecting Bitcoin's dominance are as follows:
New Cryptocurrencies
Some newly released coins generate a lot of interest in the market. As they gain traction and popularity, the coin's market capitalization may rise. In this case, Bitcoin dominance may experience downward pressure.
Trends
When the trend in the crypto market changes, it puts pressure on the Bitcoin dominance, which may remain bearish until the trend ends. Investors tend to buy whichever token is trending. Therefore, Bitcoin's market dominance will decline as the market capitalization of these tokens rises.
Market Situation
The crypto market has bear and bull seasons. When entering these seasons, the market situation has an impact on Bitcoin dominance. The most influential factor is the "altcoin" season. This is because the altcoin season is the period when altcoins are more effective and stable path than Bitcoin. In this interval, Bitcoin dominance may decline.
How Is Bitcoin Dominance Calculated?
To find the market capitalization of Bitcoin (BTC), the total current Bitcoin (BTC) value is multiplied by the number of Bitcoin (BTC) ever produced. Once the market capitalization is calculated, Bitcoin dominance is calculated by dividing the Bitcoin market capitalization by the total cryptocurrency market capitalization. The resulting ratio represents Bitcoin dominance.
Why Is Bitcoin Dominance Important?
Bitcoin dominance provides insight into the overall picture of the cryptocurrency market in terms of transactions made and ratios found. Bitcoin's (BTC) ubiquity, frequent use, and high volume have a significant impact on the cryptocurrency market. Bitcoin dominance can help determine the overall direction of not only Bitcoin (BTC) but also the cryptocurrency market as a whole.
How to Trade Crypto Using BTC Dominance?
Bitcoin and altcoins are the two most common cryptocurrencies in the crypto sector. The Bitcoin dominance ratio can be used to find out which of these two cryptocurrencies is showing a stronger trend. People interested in trading may need the Bitcoin dominance ratio to find out whether altcoins are suitable for investment and whether Bitcoin (BTC) is trending. They use this strategy to determine which one will perform better when trading. Another option is to trade extreme highs and lows. If the ratio goes extremely low, you may see an increase in Bitcoin dominance. If the ratio has risen excessively, it could create some trading opportunities. However, it's important to manage your risk well in case the ratio becomes extremely bullish.
What Happens if Bitcoin Dominance Rises and Increases?
During the rise of Bitcoin dominance, the values of other cryptocurrencies fall. The reason for the rise of this dominance is that people are trading on Bitcoin and turning to Bitcoin. If there is a decline in Bitcoin dominance, there will be an upward increase in the value of other cryptocurrencies. The dominance rate varies according to people's orientation, market conditions, and trends.
