Bitcoin dominance is a metric that shows how much of the total cryptocurrency market value is made up of Bitcoin. It can help traders understand the market sentiment, spot potential trends, and find profitable opportunities. Here’s how you can use Bitcoin dominance as a trading indicator. By: Ailtra November 9, 2023
Table of Contents
- What is Bitcoin dominance and how is it calculated?
- How does Bitcoin dominance change over time?
- How can Bitcoin dominance be used for investing?
- How can Bitcoin dominance predict the altcoin season?
Bitcoin is the first and most popular cryptocurrency in the world. It has a significant influence on the overall cryptocurrency market, as it often sets the tone and direction for other coins. However, Bitcoin is not the only cryptocurrency out there, and there are thousands of altcoins that compete with it for market share. To measure how dominant Bitcoin is compared to other cryptocurrencies, there is a metric called Bitcoin dominance.
What is Bitcoin dominance and how is it calculated?
Bitcoin dominance is the ratio of Bitcoin’s market cap to the overall market cap of cryptocurrencies. It serves as a metric used by crypto traders to get a pulse of the market, spot possible trends and trading opportunities, and understand the trends in the altcoins market. It is calculated as (Bitcoin market cap / total crypto market cap) x 100. For example, if Bitcoin’s market cap is $800 billion and the total crypto market cap is $1.6 trillion, then Bitcoin dominance is ($800 billion / $1.6 trillion) x 100 = 50%.
How does Bitcoin dominance change over time?
Bitcoin dominance changes over time depending on various factors, such as the price of Bitcoin, the emergence of new altcoins, the popularity of stablecoins, and the market conditions. Generally, Bitcoin dominance tends to increase when Bitcoin is showing strong price action, when there is high volatility and uncertainty in the market, or when there is a lack of innovation and adoption in the altcoins market. Conversely, Bitcoin dominance tends to decrease when Bitcoin is stagnating or declining, when there is low volatility and stability in the market, or when there is a lot of innovation and adoption in the altcoins market.
How can Bitcoin dominance be used for investing?
Bitcoin dominance can be an effective tool for investors, as it can provide insights into the market sentiment and potential trends. A rising dominance indicates that Bitcoin is growing compared to other altcoins, which could signify a bear market or that Bitcoin is leading a bull market. A decreasing dominance indicates that altcoins are growing compared to Bitcoin, which could signify a bull market or that altcoins are catching up with Bitcoin. By analyzing the dominance chart in conjunction with the Bitcoin price chart, investors can gain insights into the market cycles and make informed decisions.
How can Bitcoin dominance predict the altcoin season?
When the Bitcoin dominance chart shows a decline, especially in a bull market, it can indicate the onset of an altcoin season. This is a period when altcoins experience significant growth in valuation compared to Bitcoin. A downtrending dominance chart in a bull market suggests that altcoins are gaining more traction and popularity among investors, and that they are offering more value and innovation than Bitcoin. An altcoin season can be a great opportunity for investors to diversify their portfolio and increase their returns.
Bitcoin dominance is one of the most important and useful metrics in the cryptocurrency market, as it can help traders understand the market dynamics and find profitable opportunities. By using Bitcoin dominance as a trading indicator, traders can gain an edge over the market and make better decisions. If you want to learn more about Bitcoin dominance and other crypto trading indicators, you can sign up for Ailtra, the AI-powered crypto trading platform that helps you trade smarter and faster.
