By Larry Wright
Introduction
BTC dominance is the percentage of the total cryptocurrency market capitalization that is held by Bitcoin (BTC). In other words, it represents the proportion of the total value of all cryptocurrencies to Bitcoin.
BTC dominance is a commonly used metric to measure the market share of Bitcoin relative to other cryptocurrencies. It is calculated by dividing the market capitalization of Bitcoin by the total market capitalization of all cryptocurrencies.
BTC Dominance = Total BTC Market Cap/Total Crypto Market Cap
For example, if the total market capitalization of all cryptocurrencies is $1.2 trillion, then Bitcoin’s dominance of 50% will be equal to $0.6 trillion.
BTC dominance is important because Bitcoin has historically been the most dominant and widely adopted cryptocurrency, and as such, changes in its dominance can signal shifts in the overall cryptocurrency market.
High BTC dominance usually indicates that Bitcoin is in a bullish trend, and investors have more confidence in it compared to other cryptocurrencies. Conversely, low BTC dominance may suggest a bearish trend and that other cryptocurrencies are gaining traction in the market.
BTC dominance is a popular metric used in cryptocurrency trading to gauge the relative strength of Bitcoin compared to the broader cryptocurrency market. BTC dominance can be used in trading for Market analysis, Diversification, Trading strategies & Risk management
Impact of BTC Dominance on the Crypto Market
BTC dominance can have a significant impact on the overall cryptocurrency market. As Bitcoin is the most well-known and largest cryptocurrency, its dominance can signal the health of the broader cryptocurrency market. Here are some ways that BTC dominance can impact the overall crypto market:
Price Movements
Changes in BTC dominance can have an impact on the prices of other cryptocurrencies. For example, if BTC dominance increases, it may lead to a decrease in the prices of altcoins (alternative cryptocurrencies) as investors may shift their funds to Bitcoin, which they view as a more stable investment. Conversely, a decrease in BTC dominance may lead to an increase in the prices of altcoins as investors seek higher returns from riskier investments.
Market Sentiment
BTC dominance can also influence market sentiment. When Bitcoin is performing well, investors may feel more optimistic about the overall cryptocurrency market and be more likely to invest in other cryptocurrencies.
On the other hand, if BTC is performing poorly, investors may be less confident about the broader cryptocurrency market and may be less likely to invest in other cryptocurrencies.
Investment Strategies
BTC dominance can also impact investment strategies. Investors may choose to allocate a higher percentage of their portfolios to Bitcoin when BTC dominance is high and then shift their investments to altcoins when BTC dominance is low.
History of BTC Dominance
BTC dominance has fluctuated significantly over the past few years. At the beginning of 2014, BTC dominance was close to 100%, as Bitcoin was the only significant cryptocurrency in the market. However, over the years, as more cryptocurrencies were introduced, BTC dominance gradually declined.
In early 2017, BTC dominance was around 85%, but it began to decline rapidly as the popularity of alternative cryptocurrencies, such as Ethereum and Ripple, increased. By early 2018, BTC dominance had fallen to around 33%, as many investors shifted their focus to altcoins.
However, in late 2018 and early 2019, BTC dominance began to increase again as investors became more cautious about investing in altcoins. This trend continued through most of 2019 and 2020, with BTC dominance reaching a high of over 70% in early 2021.
In the first half of 2021, BTC dominance began to decline again as investors became more interested in altcoins and decentralized finance (DeFi) projects. In September 2021, BTC dominance declined to around 40% as the cryptocurrency market became more diversified. Since then, it is fluctuating between 35%-45%.