First-ever Crypto that was launched in 2008 was Bitcoin; since then, there have been thousands of Cryptos launched, but Bitcoin has remained the largest and most impactful in the whole Crypto industry. Bitcoin’s size and popularity have the potential to move Crypto market trends; this is also referred to as Bitcoin Dominance. Let’s find out more about this term in this article.
What is Bitcoin Dominance?
Bitcoin Dominance is a percentage of the Crypto market cap that is comprised of Bitcoin. It can assist you in evaluating the trend of BTC and altcoins.
The most crucial aspect of Bitcoin Dominance is that it enables you to determine whether altcoins are experiencing an uptrend or a downturn relative to BTC.
- When BTC Dominance increases, altcoins generally depreciate in value compared to BTC.
- When BTC Dominance declines, altcoins as a whole appreciate in value compared to BTC.
Consequently, you should often invest in Bitcoin (or cash) when Bitcoin Dominance is rising and in alternative assets (such as ETH, large caps, mid caps, low caps, etc.) when Bitcoin Dominance is dropping.
In Crypto bull markets, a steep and steady decline in dominance typically occurs due to the tendency of intense bull markets to drive alt capitalizations higher than Bitcoin. Similarly, a reversal of this trend often indicates a bear market.
A quick history of Bitcoin Dominance
Early in the history of Crypto, investors had little interest in Cryptos besides Bitcoin. As people did not find altcoins compelling, Bitcoin Dominance increased to 94% in 2013.
With the initial coin offering (ICO) boom of 2017, altcoins became more well-known. At this point, Bitcoin Dominance became a powerful indicator of market performance. But it wasn’t until the Crypto market experienced a boom in 2021 that it became a widely used metric. Price-tracking platforms now frequently employ it as a measurement tool.
Why is Bitcoin Dominance important?
There are multiple reasons why Bitcoin Dominance is important. A few of them are mentioned below:
- Market trends: Bitcoin often sets the pattern for the rest of the market because it is the biggest and most well-established Crypto. According to research, investors are more interested in Bitcoin than other Cryptos when Bitcoin Dominance is high. On the other hand, a low Bitcoin Dominance indicates that investors are looking into other Cryptos.
- Investor sentiment: The prevalence of Bitcoin may also be a sign of how investors feel about the Crypto industry. A high degree of Bitcoin Dominance shows that investors are confident in the market, while a low level of Bitcoin Dominance may signify uncertainty or pessimism.
- Risk management: Understanding Bitcoin Dominance can be a useful risk management technique for Bitcoin traders and investors. Investors can manage their exposure to various Cryptos and diversify their portfolios by keeping an eye on Bitcoin Dominance.
- Market capitalization: Bitcoin Dominance can also shed light on the overall size of the Crypto sector. As Bitcoin Dominance rises, the market capitalization of Bitcoin is increasing in comparison to other Cryptos. On the other hand, a declining Bitcoin Dominance may signal a declining market capitalization for all Cryptos.
Factors that impact Bitcoin Dominance
There are various factors that can impact Bitcoin Dominance. A few are mentioned below:
- Features of altcoins: Prior to 2015, the majority of Cryptos had relatively straightforward goals: to enhance certain features of Bitcoin. Nothing new was added in terms of features. With the introduction of Ethereum and smart contracts, blockchain technology was redefined. Now that Crypto tokens are widely employed throughout industries like DeFi, gaming, and the arts, this has resulted in lowering Bitcoin Dominance.
- Stablecoins: Stablecoins are Crypto tokens that reduce price fluctuation for simpler transactions. The Crypto market increases in value without any change in Bitcoin as more people utilize stablecoins for trading and transactions. This may lessen Bitcoin Dominance.
- Market cycles: Bitcoin Dominance can be impacted in a variety of ways by bull or bear markets. In the Crypto world, Bitcoin is seen as a relatively safe asset. Therefore, it will be expected that BTC Dominance will grow even during a bear market. However, in a bull market, investors might decide to shift their money to riskier alternatives, lowering BTC Dominance.
Bitcoin Dominance is a powerful indicator that one can use to manage risk exposure, find fascinating projects, and decide how to balance their portfolio.
But it’s a controversial indicator. Some people think that Bitcoin Dominance in the past was only significant because a few Cryptos were available. They contend that Bitcoin will eventually have less of an impact on the market.
However, Bitcoin Dominance is a prevalent indicator among those who support Bitcoin especially. When used correctly, it can offer insightful information about trends that have an impact on the entire Crypto market.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.