What is Bitcoin market dominance? What does it do?

The ratio of the market value of Bitcoin (BTC) to the total cryptocurrency market value is called “Bitcoin market dominance” or “BTC dominance index”.

Bitcoin, which has the highest market value due to being the first cryptocurrency, is the currency that many investors look at first.

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The market dominance of Bitcoin, which has always been in the first place in terms of market values ​​throughout history, has always been at the highest level.

Comparison of the total market value (April 11, 2021). Source: CoinMarketCap

Bitcoin market dominance, which was over 95 percent before 2014, fell below 32 percent in 2018, when many altcoins, especially Ethereum (ETH), were popular.

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In April 2021, when this article was prepared, Bitcoin market dominance was calculated at around 55 percent.

How is Bitcoin market dominance calculated?

Bitcoin market dominance; It is a simple ratio calculated by dividing the BTC market cap by the total cryptocurrency market cap.

Suppose the total market capitalization of all cryptocurrencies is $ 100 billion. If the total market value of BTCs in circulation is $ 70 billion, then the Bitcoin market dominance rate will also be calculated at 75 percent.

How does Bitcoin market dominance increase or decrease?

As it is known, all crypto currencies other than Bitcoin are called “altcoin”, which means “alternative coin”. The decline in Bitcoin market dominance indicates the prominence of other currencies, namely altcoins.

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Usually, investors turn to alternatives to get an opportunity when the Bitcoin price is flat. In this case, instead of going outside of the cryptocurrency ecosystem, they make altcoin investments.

As a result, the total amount in the Bitcoin market decreases and money flows into the altcoin market. Thus, Bitcoin market dominance regresses.

The opposite happens and if altcoin investors exchange their coins for BTC, this time Bitcoin market dominance rises. As the cryptocurrency market is highly driven by Bitcoin, its increasing dominance indicates that investors are moving from more risky cryptocurrencies to a safer harbor.

Why is Bitcoin market dominance important?

During the periods when altcoins are prominent, sudden declines are observed in Bitcoin’s market dominance. In this case, altcoin transaction volumes increase, investors reduce their transactions with Bitcoin.

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In times of decline in Bitcoin transactions, more choice of altcoin options allows many coins to reach a record level. This situation is often referred to by the term “altseason”, which means “altcoin season”.

Altcoin transaction volumes increase when the Bitcoin market dominance decreases to 50 percent. These periods, defined as “Altseason”, mostly reflect positively on the crypto money ecosystem.

Although the market dominance rate is used as an indicator that guides traders’ strategies, this data alone is not sufficient as in almost every indicator.

Some experts include Bitcoin market dominance data; He argues that investors who lose or lose their private keys to hackers do not take into account their BTC, which will never be used.

Finally, the BTC market dominance data can give you an idea of ​​how much of your savings you should allocate to the altcoin market.

DISCLAIMER: The statements contained here are not investment advice. Never trade without researching the markets thoroughly and without comments from different circles. Read the comments of the investors you trust, consult their opinions. Remember that every trading transaction involves risk. Make your own decision when taking any action. Cointelegraph cannot be considered directly or indirectly responsible for any damages or losses arising or allegedly arising from investment products or services.

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