What is Bitcoin Dominance?
Bitcoin’s popularity explosion has attracted many traders and investors. Everybody wants to benefit from this virtual currency by trading or to own it. However, some people don’t know much about this virtual currency. Therefore, they start their crypto investment or trading journey by researching Bitcoin.
When you decide to trade or invest in Bitcoin, you will encounter many terms during the initial research. Bitcoin dominance is among the most famous words from experts and crypto writers. Ideally, the Bitcoin dominance ratio helps traders spot variations in the market conditions between this digital currency and altcoins.
Using Bitcoin dominance correctly can help a trader or investor determine whether trading altcoins is more practical than trading Bitcoin. Most traders use terms like Bitcoin dominance, Bitcoin dominance index, and Bitcoin dominance ratio interchangeably. This article elaborates on Bitcoin dominance and related factors and strategies.
Bitcoin dominance refers to the ratio between Bitcoin’s market capitalization and the total market cap of the whole cryptocurrency market. When comparing the dominance ratio to the Bitcoin trend itself, you spot more opportunities in the crypto market.
COPYRIGHT_WI: Published on https://washingtonindependent.com/w/bitcoin-dominance/ by Elyse Woods on 2022-04-18T04:51:37.527Z
To understand Bitcoin dominance better, traders should first learn about market capitalization and its importance. In the crypto world, market capitalization means the value of the total coins miners have generated. Investors and traders calculate market capitalization by multiplying the circulating coins by the current price of one Bitcoin in the market.
Platforms like Crypto Genius may indicate the market price of every Bitcoin at any given time. Perhaps, you can check the bitcoin billionaire to know the current market price of this virtual currency. Nevertheless, that’s how traders, investors, and crypto experts calculate Bitcoin’s market cap.
Bitcoin dominance utilizes market capitalization and the total crypto market cap in its calculation.
Bitcoin Dominance Ratio = Total crypto market cap+ Bitcoin market cap
Generally, the overall crypto market capitalization direction and shape follow Bitcoin. This digital currency influences the entire cryptocurrency market since it’s the largest, first, and most widely recognized crypto asset.
Initially, Bitcoin dominance hovered at around 95% or higher. That’s because only a few altcoins attracted investors. However, Bitcoin dominance reduced when other investors started showing interest in other cryptocurrencies.
Bitcoin dominance decreased to as low as 35% when investments in other cryptocurrencies increased. However, it rallied back to almost 70% starting in 2018 when other cryptocurrencies went bust.
In 2021, Bitcoin dominance started plummeting again with increasing investments in other cryptocurrencies and negative news about Bitcoin’s energy consumption and the China ban. Overall, Bitcoin market capitalization and the total market capitalization of the cryptocurrency market are the primary influencers of Bitcoin dominance.
Bitcoin dominance ratio’s numerator is its market cap. The number of circulating Bitcoins is reasonably steady, and its growth won’t be that much. Therefore, Bitcoin’s price is the most significant influence on its market cap.
Essentially, Bitcoin’s market cap resembles and closely follows Bitcoin’s price movement. When the price increases, the market cap increases proportionately. Nevertheless, an upward trend for the market cap doesn’t mean that dominance will increase. Market cap is a numerator of its ratio. Therefore, the Bitcoin market cap’s speed compares to the second-largest influencer of its dominance ratio, the altcoins market capitalization.
Bitcoin dominance or Bitcoin dominance ratio can help you comprehend trends in the cryptocurrency market. Depending on the ratio trends and Bitcoin’s price, an investor or trader can determine whether Bitcoin or altcoins have stronger tendencies. Overall, investigating Bitcoin dominance will help you understand the cryptocurrency market conditions.