Bitcoin Dominance

A Comprehensive Understanding

What is Bitcoin Dominance?

Bitcoin (BTC) dominance is the metric that measures Bitcoin's market share in the cryptocurrency market. This metric shows the percentage of Bitcoin's market capitalization compared to the total market capitalization of all cryptocurrencies. Since Bitcoin is the first and largest digital asset in the crypto market, its dominance remains an important indicator for investors and analysts. It includes not just cryptocurrencies but also stablecoins and other digital tokens.

History of Bitcoin Dominance

Bitcoin dominance was over 90% in the early days as there were only a few altcoins available at that time. As Litecoin, Dogecoin, and other altcoins were launched, competition in the market increased.During the pariod of 2017 bull market, Bitcoin dominance dropped to 37% after this growth crazy. However, in the subsequent bear market, Bitcoin gradually regained its share and reached around 72% in early 2021.The 2021 bull market again launched many new altcoins, whose prices skyrocketed. This caused Bitcoin's dominance to once again fall to the 40% level, where it remains stable today.

Keyactors affecting Bitcoin dominance:

1. Bitcoin price fluctuations:

Since the total number of Bitcoins is limited, its market capitalization is mainly affected by price fluctuations.

2. Altcoin market capitalization:

The ever-increasing number of altcoins and new projects reduce Bitcoin's dominance.

3. Market conditions:

Bull market: When the market is bullish, investors take more risk and invest in altcoins. This reduces Bitcoin's dominance.Bear market: During a downturn, investors prefer to invest safely in stable assets like Bitcoin, which increases its dominance.

4. Effect of stablecoins:

The growing demand for stablecoins like USDT, USDC and BUSD this coin increases the shares of altcoins in the total crypto market capitalization, decrease Bitcoin's dominance.

5. Changing trends and narratives:

New trends like DeFi (Decentralized Finance) and NFTs boosted altcoin prices, affecting Bitcoin's market share.

6. Launch of new tokens and projects:

The launch of every new project increases the overall market share of altcoins and Bitcoin's dominance gradually decreases.

Use of Bitcoin Dominance in Trading

1. Identifying Altcoin Season:

When Bitcoin's dominance decreases rapidly and the price remains stable, it may be a sign that altcoin season has begun.

2. Understanding market trends:

Bitcoin price and dominance both increase: This indicates that Bitcoin is the strongest asset.Bitcoin price increases but dominance decreases: This indicates that altcoins are bullish.Bitcoin price and dominance both fall: This indicates that the overall market is bearish.

3. Risk Management:

Dominance metrics can be used by traders to limit risk. When Bitcoin's dominance is rising, it may be wise to reduce investments in altcoins.

Criticisms of Bitcoin Dominance

1. Increasing Altcoin Supply:

Constantly launching new tokens naturally decreases Bitcoin dominance, which makes this metric not completely accurate.

2. Limitations of Market Cap:

Market cap is calculated by token price × number of tokens in circulation. But many Bitcoins are lost or never used, which can lead to a lower real market cap.

Closing Thoughts

Bitcoin dominance is an important metric that helps understand market direction and trends. Although it has some limitations, its correct use can give a strategic advantage in trading. It is extremely important to do the right research before investing and follow risk management.

("Never risk more than what you're willing to part with.")