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Bitcoin Dominance

BTC Dominance

Since Bitcoin's (BTC) launch in 2009, few competing cryptocurrencies (or “altcoins”) have come close to its market size and valuation. Currently, Bitcoin is the largest cryptocurrency by market cap in the world, with a major influence on the entire crypto ecosystem.

Because of BTC's significance to the industry, traders pay careful attention to Bitcoin-related news and price performance. Sometimes, the coin’s value fluctuations can serve as a bellwether for the digital assets sector as a whole.

To clearly quantify Bitcoin's strength in the cryptocurrency market, investors use a formula known as "BTC dominance." Calculating the BTC dominance score can provide crucial data and insight on how money flows in the digital asset economy.

What is Bitcoin Dominance?

Bitcoin dominance is an equation that calculates Bitcoin's market value relative to the entire cryptocurrency market. To determine the current BTC dominance score, use the following formula:

  • Bitcoin dominance = BTC's market cap / Global cryptocurrency market cap

"Market cap" (or "market capitalization") refers to the total amount of money currently invested in an asset. To determine a cryptocurrency's market cap, multiply the coin's current price by the number of coins in circulation.

For example, if Bitcoin was trading at $20,000 USD per coin and there were 19.5 million BTC in circulation, its market cap would be $390 billion USD:

  • $20,000 USD x 19.5 million = $390 billion USD

To discover the BTC dominance score from the above example, find the latest global crypto market cap and put $390 billion in the numerator position. If the entire crypto market cap is $1 trillion, the BTC dominance formula would play out as follows: 

  • $390 billion USD /$1 trillion USD = 39%

This hypothetical calculation shows 39% of the money invested into the cryptocurrency space is currently in BTC.  

Why is BTC Dominance Important? 

BTC dominance is a simple way for investors to monitor how money moves through the cryptocurrency ecosystem.

Specifically, traders use BTC dominance to determine how many investors are interested in altcoins rather than Bitcoin. Market analysts believe that a decline in BTC dominance means more people are investing in altcoin projects. Conversely, if BTC dominance increases, more traders are taking money out of smaller coins and putting their funds into Bitcoin. Traders use this data to determine the overall risk tolerance in the cryptocurrency market when developing their buy or sell strategies.

For example, during the 2017–2018 cryptocurrency bull run, people noticed altcoin prices surge as BTC dominance fell to a low of 37%. However, as the 2018 bull market came to an end, BTC's dominance steadily rose until it reached 71% in 2019. In this case, BTC dominance trends predicted when altcoins would outperform BTC (a period called "alt season") and when the cryptocurrency bear market would begin.

What Factors Influence BTC Market Dominance?

The BTC dominance score depends on “supply and demand.” In economics, supply and demand is the theory that prices rise or fall depending on how many people want a particular asset (demand) and how much of that asset is available (supply). If there's more demand for BTC relative to other cryptocurrencies, then its dominance will rise. On the other hand, when fewer investors are interested in BTC, it won't perform as well in the cryptocurrency market. 

Although supply versus demand helps explain BTC's performance, dozens of reasons can influence buying or selling pressure. Cryptocurrency investors monitor several market indicators when analyzing BTC dominance scores. These include:

  • Market sentiment: In financial markets, "sentiment" refers to how most traders feel about the future outlook of asset prices. Investors who are "bullish" are optimistic and more willing to buy. Conversely, a "bearish" sentiment means most people expect prices to go down. BTC dominance may reflect how the majority of market participants feel about investing in cryptocurrencies. 

  • News: Big or breaking news stories surrounding cryptocurrency can influence how many investors and institutions enter the space. For instance, a positive report on Latin America’s Bitcoin adoption could explain why BTC dominance is increasing. 

  • Macroeconomic data: Along with crypto-specific news, noteworthy economic data often influences how many people buy into Bitcoin or altcoins. Information such as inflation rates, GDP scores, and unemployment could sway investors' appetite for cryptocurrencies.

  • Increase in new altcoins: When new cryptocurrencies enter the cryptocurrency ecosystem, they increase the number of available options, while Bitcoin’s market cap remains the same. This inevitably dilutes Bitcoin's total market share. In other words, the more altcoins that enter circulation, the lower the BTC dominance score.

Is BTC Dominance a Reliable Market Indicator? 

As the altcoin market grows, some investors have become skeptical of BTC dominance scores. A “weak” BTC dominance percentage may not reflect its actual market influence. Instead, it may simply highlight the thousands of small altcoin projects in the space.

BTC dominance also doesn't account for the rise in stablecoins, low-volatility cryptocurrencies with a 1:1 value pegged to a real-world asset (such as the U.S. Dollar). Many USD stablecoins, such as USDT and USDC, have become popular with traders who want to escape market volatility. Instead of rushing to Bitcoin during market downturns, more people are using stablecoins to protect their purchasing power. Therefore, an increase in BTC dominance won’t necessarily predict a bear market as it did at the end of the 2018 bull run.

FAQs about Bitcoin Dominance

Cryptocurrency traders must stay on top of market trends to make informed investment decisions. Here are the answers to common questions about BTC dominance:

What's the highest Bitcoin dominance score can go? 

Theoretically, BTC dominance could reach 100%—but that means every other cryptocurrency must hold 0% of the market. The last time Bitcoin dominance was in the 90% range was in 2016, when very few of today’s altcoins existed. How high BTC dominance will climb in the future depends on its performance and whether the altcoin market continues to expand.  

Can BTC dominance predict "alt season"?

"Alt season" refers to a period of time when altcoins rise in value faster than Bitcoin. Cryptocurrency traders often use BTC dominance to determine when smaller altcoins will most likely enter a huge bull run. Traditionally, as Bitcoin dominance declines, the probability that the crypto market is in an alt season increases.

However, as more altcoins enter the market, using BTC dominance to predict alt seasons isn't as straightforward as in prior bull runs. Also, BTC dominance doesn’t reflect when traders switch from stablecoins to more volatile altcoins. So although BTC dominance will likely decline when investments in altcoins rise, it isn’t the most reliable indicator.

What is "real BTC dominance"? 

"Real BTC dominance" only measures BTC's market cap relative to altcoins with a "Proof-of-Work" (PoW) algorithm. First introduced on the Bitcoin blockchain, PoW is a method of confirming crypto transactions with computing power. Computers that join a decentralized PoW network use energy to solve complex math problems every few minutes. The first computer that solves each puzzle gets to post a new transaction block on the cryptocurrency’s public ledger and earn rewards in the form of coins.

To calculate "real BTC dominance," investors divide Bitcoin's market cap by the combined market cap for all PoW cryptocurrencies. People who favor "real BTC dominance" argue that only the leading PoW altcoins are in direct competition with Bitcoin, which means this score better reflects BTC’s competitive advantage over similar projects. While this perspective is sometimes refuted, some PoW chains are decentralized peer-to-peer (P2P) payment networks like Bitcoin—examples of PoW altcoins include Bitcoin Cash, Litecoin, and Dogecoin. 

Where can traders find BTC dominance charts? 

Many reputable cryptocurrency price aggregator sites display BTC dominance on their homepage. For example, CoinMarketCap has a BTC dominance chart that anyone can use to analyze current and past trends. Other sites, such as CoinGecko and TradingView, have free-to-download BTC dominance data.

What is Ethereum dominance?

Ethereum (ETH) dominance measures how large the cryptocurrency ETH is relative to the crypto market cap. Because Ethereum currently ranks as the second-largest cryptocurrency by market cap, many traders are interested in its share of the digital assets economy. Websites like TradingView and CoinMarketCap now provide ETH dominance scores alongside BTC dominance.

ETH dominance uses the same formula as BTC dominance, except traders put ETH's current market cap in the numerator position. For example, if ETH's market cap was $200 billion USD and the crypto market cap was $1 trillion USD, an ETH dominance calculation would be as follows:

  • $200 billion / $1 trillion = 20%

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