Bitcoin dominance is defined as the ratio of Bitcoin’s market capitalization (market cap) to the market capitalization of the whole cryptocurrency market. It’s also called the Bitcoin dominance ratio or the Bitcoin dominance index.
Alternatively referred to as BTC dominance, Bitcoin dominance is determined by contrasting the market value of Bitcoin with the collective market value of all other cryptocurrencies. Bitcoin dominance is a reference point for confident crypto investors and traders to fine-tune their trading strategies and portfolio compositions.
Although the emergence of altcoins, the initial digital currency, bitcoin, has remained the most valuable digital asset in market value. By examining the fluctuations in Bitcoin’s market share within the cryptocurrency market, traders have identified consistent patterns to guide their trading decisions. Many traders rely on BTC dominance as an indicator of the prevailing market trend at any given time.
Market Cap & BTC’s Dominance: Exploring The Relationship
In essence, market capitalization denotes the aggregate worth of a particular asset that is currently in circulation. The prevailing price and the quantity of BTC successfully mined to date determine the market cap of Bitcoin.
This valuation metric provides insight into the overall value and size of the Bitcoin market, reflecting the combined weight of all existing Bitcoins. By considering market capitalization, investors and analysts can gain a better understanding of the significance and uniqueness of Bitcoin within the broader financial landscape, as it captures the total market value of this distinctive digital currency.
You can use this formula to calculate Bitcoin dominance.
Bitcoin domination = Bitcoin market capitalization/Total cryptocurrency market capitalization
Influential Factors Shaping BTC Dominance
Before The Altcoin Boom: Bitcoin’s Dominance
Before the rise of altcoins, Bitcoin could easily sustain a dominance level of more than 90%. However, as the cryptocurrency sector matured, altcoins gained popularity among investors and customers. As a result, bitcoin progressively lost its formerly constant focus as alternative assets with higher price volatility and businesses with novel use cases arose.
Altcoins: Beyond The Realm Of Bitcoin
The landscape of crypto projects has significantly evolved since the initial conceptualization of Bitcoin to revolutionize the transfer of value. Unlike Bitcoin, numerous altcoins are now actively engaged in various sectors, including gaming, art, and decentralized financial services that extend beyond simple money transfers.
Consequently, the interest and trading activity in the crypto market can fluctuate depending on the prevailing trend. For example, the recent explosion of non-fungible tokens (NFTs) may have caused a temporary decline in BTC dominance in favor of NFT-related tickets.
Bitcoin’s Journey To Stability
Bitcoin has been one of the most stable crypto assets over time. However, the allure of more pronounced price swings and associated profit opportunities offered by newer altcoins can influence Bitcoin’s dominance. This, in turn, leads to capital flowing into riskier assets. In such instances, the sectors represented by these altcoins may not be as significant as the potential for substantial profits.
In conclusion, the dynamics of Bitcoin dominance have undergone significant transformations in the face of the altcoin explosion. While bitcoin remains a stable crypto asset, the evolving interests of traders and investors seeking greater profits through higher-risk altcoins can shape the dominance landscape. The sectors these altcoins represent may become less influential as the pursuit of potential gains takes center stage.
Bull Or Bear Market
Rise Of Stablecoins & Their Impact On BTC Dominance
In recent times, there has been a considerable increase in the popularity of stablecoins, resulting in a long-term influence on Bitcoin’s (BTC) supremacy. Stablecoins safeguard crypto investors amidst declining prices, observing this influence under different market conditions, including bear markets and times of volatility. Stablecoins, alternative cryptocurrencies, are designed to maintain a value equivalent to a more stable asset like fiat currency or a commodity. Their primary utility is allowing investors and traders to secure profits without converting their cryptocurrencies to fiat.
Bear Market & Volatility:
During bear markets or periods of high volatility, investors frequently transfer their funds from the BTC market to stablecoins. This shift helps safeguard their investments by reducing exposure to declining prices and market uncertainties. Consequently, the increased usage of stablecoins tends to diminish BTC dominance.
Bull Market & Trading Opportunities:
Conversely, in a bull market, traders are often enticed to transfer their value from stablecoins to more volatile assets like Bitcoin. The upward market trend presents more excellent trading opportunities, prompting individuals to seek potentially higher returns by engaging with Bitcoin. However, it is worth noting that during bullish conditions, some traders may also opt for riskier options and inject liquidity into altcoins that exhibit even greater volatility than BTC. As a result, the overall impact of favorable market conditions on Bitcoin dominance is heavily contingent on the specific context and dynamics at play.
On-ramping Via Stablecoins
Stablecoins have become a convenient alternative to fiat currencies for accessing various cryptocurrencies. Unlike fiat-to-crypto gateway exchanges with limitations and typically support only popular cryptocurrencies and stablecoins, crypto-to-crypto sales offer a broader selection of tradable cryptocurrencies when paired with specific stablecoins. This article explores how stablecoins enable individuals to enter the cryptocurrency market quickly and discuss the potential impact on Bitcoin dominance when a significant influx of funds enters the market through stablecoins.
Enhanced Accessibility Through Stablecoins
Stablecoins are a practical means to access a diverse range of cryptocurrencies compared to relying solely on fiat currencies. While gateway exchanges facilitate the conversion of fiat to crypto, they often impose restrictions by limiting the available options to popular cryptocurrencies and stablecoins. On the other hand, crypto-to-crypto exchanges provide a more extensive selection of tradable cryptocurrencies, allowing users to explore a broader market by utilizing specific stablecoins. This accessibility enables individuals seeking to trade specific cryptocurrencies to enter the market via stablecoins conveniently.
Impact On Crypto Market Value & BTC Dominance
The entry of significant new funds into the crypto market through stablecoins, as opposed to Bitcoin, can influence the market’s overall value. When stablecoins attract substantial investments, the total value of the cryptocurrency market increases. This influx of funds creates a scenario where the dominance of Bitcoin, known as BTC dominance, may experience dilution. As stablecoins gain popularity and become a preferred entry point for investors, they contribute to the expansion and diversification of the crypto market, impacting the relative dominance of Bitcoin.
The Emergence Of New Coins
The Impact Of New Coins On BTC Dominance
The rapid popularity of newly introduced coins can lead to decreased BTC dominance. It’s essential to recognize that Bitcoin competes with other cryptocurrencies, and the simultaneous emergence of multiple popular altcoins can influence its position. Nonetheless, these altcoins can lose popularity once the initial excitement disappears. Suppose such a scenario unfolds and funds are shifted from these altcoins to BTC or even withdrawn from the crypto market. In that case, the dominance of BTC may experience a resurgence.
Employing Bitcoin Dominance For Trading Purposes
The Wyckoff Method, developed in the early 1930s, is a comprehensive collection of concepts. It assists traders and investors in traditional financial markets. Principles like cause and effect can be applied to digital currencies like Bitcoin (BTC). This allows seeking profit opportunities based on BTC dominance. The advent of digital currencies has enabled this practical application.
Understanding The Wyckoff Method
The Wyckoff Method offers valuable insights and techniques for traders and investors to identify market trends, evaluate the probability of trend reversals, and optimize trade timing. Wyckoff’s analysis categorizes trading behavior into four phases: Accumulation, markup, distribution, and markdown, according to Wyckoff’s study.
By recognizing these phases, traders gain the ability to pinpoint critical areas where funds flow. As a result, they can make more educated trading decisions based on market timing.
Utilizing The Wyckoff Method In Crypto Trading
Diversified traders and investors often embrace the Wyckoff Method as a reliable approach to identifying and capitalizing on more robust trends within the cryptocurrency market. By employing this methodology, traders can enhance their ability to select favorable entry and exit points, maximizing their profit potential. In the following scenarios, we illustrate several instances where the Wyckoff Method proves to be instrumental in guiding trading decisions:
Spotting Accumulation Patterns:
By applying the Wyckoff Method, traders can identify accumulation patterns within BTC dominance. These patterns may indicate accumulation periods by institutional investors or whales, suggesting potential upward price movements. Recognizing accumulation zones enables traders to position themselves strategically before the markup phase begins.
Assessing Distribution & Markdown Phases:
The Wyckoff Method assists traders in determining when BTC dominance might enter distribution and markdown phases. By analyzing the market’s behavior during these phases, traders can anticipate potential trend reversals or market corrections, allowing them to adjust their trading strategies accordingly.
Initially developed in the early 1930s, the Wyckoff Method remains a relevant and valuable framework for traders and investors seeking to navigate traditional financial markets.
Furthermore, individuals can apply its principles in cryptocurrencies, such as BTC dominance. By understanding and utilizing the Wyckoff Method, traders can enhance their ability to accurately identify market trends, time trades and make informed decisions that align with their trading objectives.
Using BTC dominance To Spot Altcoin Season
Unsurprisingly, the expanding number of altcoins on the market dilutes Bitcoin’s supremacy. Specific cryptocurrencies have become prominent in recent years, with the entire market valuation of altcoins momentarily exceeding that of Bitcoin. These periods, characterized by altcoins consistently outperforming Bitcoin, are called “altcoin season” or “alt season.” As per the Wyckoff Method principles, this cyclic movement of funds from Bitcoin to altcoins occurs.
Altcoin Season & The Weakening Of Bitcoin Dominance
During an altcoin season, altcoins tend to outperform Bitcoin, which can weaken Bitcoin’s dominance. This market cycle phase often allows individuals who trade Bitcoin and altcoins to adjust their portfolios accordingly. Monitoring Bitcoin dominance becomes crucial for making informed decisions.
The expanding amount of altcoins on the market has diluted Bitcoin’s supremacy. As cryptocurrencies gain popularity, their overall valuation periodically exceeds Bitcoin’s. These periods, known as altcoin seasons, witness altcoins consistently outperforming Bitcoin. Traders and investors who engage in Bitcoin and altcoin trading should closely monitor Bitcoin dominance to adapt their portfolios effectively.
Utilizing BTC Dominance In Light Of The Present Bitcoin Price
Monitoring Bitcoin Price and Dominance for Trading Decisions
While making trading decisions, some individuals keep a close watch on the price of Bitcoin in conjunction with its dominance. Although these factors are not absolute indicators, they offer potential insights into various outcomes based on different combinations of BTC price and power.
Rising BTC Price and Dominance: A Potential Bitcoin Bull Market
When Bitcoin’s price and dominance climb, it can suggest the probability of a Bitcoin bull market. This combination presents a favorable environment for Bitcoin, where its price is increasing, and it maintains a strong position in the overall cryptocurrency market.
Rising BTC Price and Falling Dominance: A Potential Altcoin Bull Market
If the price of Bitcoin is increasing while its dominance is declining, it may suggest a potential altcoin bull market. In this scenario, the rising cost of Bitcoin could be accompanied by the growing popularity and performance of alternative cryptocurrencies, indicating a shift in market sentiment towards these assets.
Falling BTC Price and Rising Dominance: A Potential Altcoin Bear Market
When the price of Bitcoin is falling while its dominance is rising, it may indicate a potential altcoin bear market. This combination suggests that despite Bitcoin’s declining value, it maintains a significant portion of the overall cryptocurrency market share. Meanwhile, alternative cryptocurrencies may experience a downturn in their performance.
Falling BTC Price and Dominance: A Potential Bear Trend for the Entire Crypto Market
If both the price and dominance of Bitcoin are falling, it may signal a potential bear trend for the entire crypto market. This combination implies a general decline in the value of Bitcoin, along with its diminishing dominance, indicating a challenging period for the broader cryptocurrency ecosystem.
It is important to note that these observations do not guarantee an actual bull or bear market. However, historical data suggests a correlation between Bitcoin price, dominance, and broader market trends.
Using BTC dominance, you can figure out how market cycles are evolving. Some traders use it to fine-tune their trading methods, whereas others use it to manage their diversified portfolios. Bitcoin’s supremacy does not ensure the success of any other cryptocurrency. Instead, it is a handbook to help traders prepare their trading strategy.