Bitcoin Dominance Chart: What Is It and Why Is It Important?

Bitcoin has an important metric that is referred to as BTC dominance. It shows how much of the entire cryptocurrency market is controlled or dominated by Bitcoin, as apparent in the name. Initially, Bitcoin had the entire market share, but as other cryptocurrencies like Ethereum and Solana emerged, Bitcoin’s dominance decreased. In this article, we will explain what BTC dominance means and why it is important. Let’s take a look:

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What Is Bitcoin Dominance?

Bitcoin Dominance is a way to see how much of the whole cryptocurrency market belongs to Bitcoin. It helps you track Bitcoin’s trend as well as how other cryptocurrencies are performing in the market. Basically, it’s a percentage that shows how much Bitcoin rules the market compared to everything else. With more altcoins gaining traction among investors, Bitcoin Dominance is a super handy indicator. It tells you if people are still all about Bitcoin or if they’re checking out other options. When Bitcoin Dominance is high, it usually means things are looking good for Bitcoin.

In short, Bitcoin Dominance is just the ratio between Bitcoin’s market value and the total value of the cryptocurrency market.

(Bitcoin market value / total crypto market value) x 100

What is the Bitcoin Dominance Chart

The Bitcoin Dominance Chart is a visual representation of BTC dominance. It does more than just tell you how much of the market Bitcoin controls. It also shows how investors feel about Bitcoin compared to other cryptocurrencies, like Ethereum, Cardano, and tons of other altcoins. This helps us figure out if people are more into Bitcoin or if they’re taking more risks with altcoins. Basically, it’s an important tool for understanding what’s going on in the market. It lets us see when Bitcoin is the top choice and when altcoins are getting more attention. The chart also shows us recent data marking the ranges where Bitcoin dominated altcoins and vice versa.

Bitcoin Dominance and Market Capitalization

Bitcoin dominance helps crypto traders track the trends of Bitcoin and altcoins like Ethereum. Since Bitcoin has the biggest market share, it’s clear how much influence it has on other altcoins. Bitcoin’s dominance has an inverse relationship with the market cap of other coins. When Bitcoin’s dominance goes up, the total market share of other cryptocurrencies drops in value. Likewise, when Bitcoin’s dominance goes down, the dominance of altcoins increases.

Factors Impacting Bitcoin’s Dominance

Price Movement

While it may sound extremely straightforward, it is important to mention that when Bitcoin’s price rises, its dominance in the market tends to increase. In the early days, when altcoins weren’t as popular, Bitcoin dominated the entire market, with altcoins holding less than 10% of the market cap. But as blockchain-based gaming, financial services, and art gained popularity, things changed. Nowadays, altcoins attract a lot of attention. However, it is important to keep in mind that an increase in price doesn’t necessarily mean that the BTC dominance is also increasing.

Altcoins

The introduction of thousands of altcoins and tokens since Bitcoin’s launch has impacted its dominance. Initially, Bitcoin enjoyed the entire market share as the main cryptocurrency that everyone talked about. However, the rise of altcoins, especially those with more use cases and adoption, has impacted Bitcoin’s dominance. Nowadays, a lot of altcoins are under investors’ radars and can gain massive traction from time to time.

Market Nature

Bitcoin’s dominance can grow even in a bear market despite both the total market cap and Bitcoin’s market cap dropping. This is because Bitcoin has evolved into a relatively stable crypto asset. Its stability means that during market downturns, investors tend to move funds from volatile altcoins to Bitcoin, increasing its dominance. However, during bullish markets, BTC can lose its dominance despite consistent increases in price.

Stablecoins

Bitcoin’s price volatility pushes investors to seek stability during downturns. They often turn to stablecoins like Tether (USDT), USD Coin (USDC), and Binance USD (BUSD), which are pegged to real-world assets. As stablecoins gain popularity as a safe store of value, they negatively impact Bitcoin’s dominance. This is because investors prefer the stability of stablecoins during times of extreme market volatility. So, if things are not going well, you will see that money flowing into stablecoins.

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How Is the Bitcoin Dominance Chart Used

Indicator of Market Sentiment

A rising Bitcoin dominance chart indicates that current crypto traders and investors are becoming more risk-averse. This often occurs during a slow bear market when Bitcoin appears to be the most reliable option for investment and trading. It can give you a broader idea of where the market is headed.

Trading Instrument

BTC dominance isn’t just an index. On platforms like Binance, you can also trade the BTCDOM/USDT perpetual futures. This means you can use BTC dominance as a short-term and leveraged trading instrument, provided you understand how to interpret the Bitcoin dominance chart alongside other metrics. While it can be a great trading instrument, knowing how to use it is also extremely important.

Measure of Total Market Performance

Bitcoin is widely regarded as an indicator of the overall performance of the cryptocurrency market. Because of this, when the Bitcoin Dominance Index rises, the broader crypto market capitalization tends to decline. Similarly, when BTC Dominance decreases, the broader market experiences a significant uptrend due to increased investment in alternative digital assets like Ethereum, Ripple, Cardano, and others.

How to Track Bitcoin Dominance?

You can track Bitcoin dominance by using any of the platforms and tools mentioned below.

• CoinMarketCap
• CoinGecko
• Bitcoin.com
• Chainanalysis

Drawbacks of Using Bitcoin Dominance Charts

Bitcoin dominance is an excellent indicator, but it has a few drawbacks as well that shouldn’t be ignored.

Growing Crypto Market

Bitcoin dominance tends to decline with the launch of new cryptocurrencies. The continuous introduction of fresh protocols and projects raises doubts about the indicator’s long-term reliability.

Accuracy Concerns

There is debate about the accuracy of Bitcoin’s market capitalization calculation. Factors such as potentially lost Bitcoin supply or dormant holdings in obsolete wallets contribute to this contention.

Limited Reliance

Given how complex and volatile the landscape is, it’s impractical to rely solely on Bitcoin dominance to improve trading strategies. Combining Bitcoin dominance with other useful indicators may lead to a more accurate interpretation of market trends.

Conclusion:

In conclusion, the Bitcoin Dominance chart is an important tool for crypto investors. BTC Dominance offers insight into market trends, indicating when investors are favoring safer options or taking risks for potentially higher returns. This provides traders with a quick overview of overall market sentiment. When used alongside other indicators, the Bitcoin dominance chart can be a powerful tool and can lead you in the right direction.

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