Until now, Bitcoin has remained the leader among the hundreds of thousands of existing and available crypto-assets on the market. As a result, an indicator was born that could measure the level of dominance of Bitcoin in the crypto market against other types of crypto (for example, altcoins), namely the Bitcoin dominance indicator.
Basically, BTC Dominance or Bitcoin Dominance is a term used in the crypto asset market to measure how much of the market capitalization is controlled by Bitcoin (BTC) compared to all other existing crypto assets. In simple terms, BTC Dominance is the percentage of the total crypto market value owned by Bitcoin.
BTC Dominance itself is important because it provides insight into how Bitcoin is positioned as the main digital currency and its level of dominance among thousands of other cryptocurrencies. In this case, BTC dominance may reflect market sentiment and investor interest in Bitcoin.
So, to better understand what BTC dominance is, how to calculate it, the factors that make it rise and fall, and its disadvantages, see the following overview.
What is BTC dominance?
Overall, BTC dominance is an important indicator in the crypto market, as it can provide insight into how Bitcoin affects the market as a whole. Being the first crypto-asset created and having the largest market capitalization, Bitcoin price movements often have a significant impact on all crypto markets.
For example, when BTC dominance increases, it means that Bitcoin is becoming more dominant compared to other crypto-assets. This may indicate that investors are seeking protection or safe haven value amid the market volatility.
On the contrary, if BTC dominance has decreased, it may indicate that there is a greater interest in alternative crypto-assets, often referred to as altcoins. During periods like this, other cryptoassets are likely to experience faster growth in value than Bitcoin.
How is BTC dominance measured?
After knowing what BTC dominance is, it is also important to know how BTC dominance is measured. Basically, the measurement or calculation of Bitcoin dominance can be done by dividing the Bitcoin market cap (BTC market cap) by the total crypto market cap (total cryptocurrency market cap) as a whole.
The market capitalization refers to the total value of a cryptocurrency, which is determined by multiplying the total number of coins or tokens in circulation by the current market price. In summary, BTC dominance is a measure of Bitcoin’s market share compared to all other crypto assets combined.
The following is a formula for calculating or measuring BTC dominance, namely:
BTC dominance ratio = BTC market cap: Total cryptocurrency market cap
Factors causing BTC dominance may change
So, now you know how to calculate BTC dominance. Furthermore, you should also understand that BTC dominance can change. Of course, this cannot be separated from various factors. At least there are two factors that can influence the rise and fall of BTC dominance, including
1. Many new crypto coin releases
When many new crypto-assets are introduced to the market, it can affect BTC’s dominance. The reason is that when there are many new altcoins launched, the overall market cap of the crypto market will increase because the number of existing assets increases. In this case, if the new altcoin’s market cap growth is faster than Bitcoins, it could make BTC dominance decline.
It should be noted that not all new altcoins have strong fundamentals or large adoption, so their impact on BTC dominance may vary. Some new altcoins are known to lose value quickly, while others can experience significant growth.
2. Issues with using new crypto coins
Furthermore, when there are important issues or use cases involving certain altcoin crypto tokens, it can also impact BTC dominance. If an altcoin project gets a lot of public attention or mass adoption in a real-world use case, its market capitalization can increase rapidly.
However, if there are significant security, fraud, or technical issues involving an altcoin project, this could lead to a decline in the value of that altcoin and positively affect BTC dominance. The reason is that investors tend to switch back to Bitcoin as a more established and safe asset.
Using BTC Dominance
Do you understand the factors that cause the rise and fall of Bitcoin’s dominance? It is important for you to know the uses of BTC dominance. Basically, there are several uses for BTC dominance as an indicator, especially for investors, including the following:
1. Determine the Alt season
BTC dominance is closely related to altcoins because they are like two sides of a coin. In this case, if BTC dominance is high, it means that investors prefer Bitcoin as their crypto asset choice and leave altcoins.
However, there are periods when altcoins are the prima donna, and this allows them to dominate the crypto market capitalization, or what are known as “altseasons”. This condition is also an opportunity for investors to explore investment opportunities in altcoins.
During altseasons, investors usually tend to shift their portfolios from Bitcoin to altcoins. Under these conditions, altcoin performance will far outperform bitcoin performance. If you want to take advantage of the momentum of this altseason, then a sign of an altseason occurring is when the BTC dominance index is strengthening, but the Bitcoin price trend is actually down.
2. Price trends
Another use of the BTC Dominance Indicator for investors is to help them make investment decisions. The reason is that BTC dominance is able to provide signals for selling and buying. In this case, investors only need to look at the trend comparison between the Bitcoin Dominance Index and the Bitcoin price tendency.
Disadvantages of BTC Dominance
After understanding the uses of BTC dominance, you should also know the disadvantages of BTC dominance. Although it has a number of uses, BTC dominance is actually inseparable from several disadvantages. Here are some of the disadvantages to be aware of, including:
1. Not considering stablecoin growth
There are times when BTC dominance wanes as investors move their funds to stablecoins in a big way. Although stable coins is actually included in the altcoin type, there is no hope that the token value will change. Therefore, to see the relationship between Bitcoin and speculative altcoins, it is best to calculate BTC dominance without involving stablecoins.
2. Do not count scam projects
The total market cap will be affected as each new token is listed on the crypto market. In fact, a number of these new tokens were created only to practice scams, retreats, or pump and dump. Even so, the presence of these new tokens remains a calculation and could have an impact on the percentage of Bitcoin dominance.
3. Do not count Bitcoins that have been lost
Another disadvantage is that the BTC dominance indicator does not count lost Bitcoins. Keep in mind that until now it is not known exactly how many Bitcoins are stuck wallet addresses which cannot be withdrawn. However, many suspect that at least 20% of the Bitcoin supply has been irretrievably lost.
This was the discussion about BTC dominance from the meaning, factors to disadvantages, you can also read a collection of other interesting articles at INDODAX Academy.
Closure
Finally, an understanding of BTC dominance has many benefits for crypto market participants to monitor the market and make wiser investment decisions.
Therefore, to effectively understand BTC dominance, market participants must regularly track and analyze crypto market data and use various other indicators to gain a more comprehensive picture of market dynamics.
Not only that, but for investors it is also important to always exercise caution when investing in crypto and always do thorough research before making an investment decision.
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Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
Ultimately, any crypto adventure you embark on is yours alone. We’re just happy to be your crypto companion, cheering you on from the sidelines (and maybe sharing some snacks along the way). So research, explore, and remember, with a little knowledge and a lot of curiosity, you can navigate the crypto cosmos like a pro!
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