In the context of the cryptocurrency market, the dominance of Bitcoin is a key indicator that reflects the weight of the market capitalization of Bitcoin in relation to the total capitalization of all cryptocurrencies. If you are an investor, understanding this indicator can give you a significant advantage in making the right decisions. In this article, we reveal everything you need to know about the dominance of the BTC: what it is, what influences it and, most importantly, how it can affect your investment portfolio.
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What is the dominant bitcoin
The dominance Bitcoin represents the percentage of Bitcoin's market capitalization compared to the entire market capitalization of cryptocurrencies. Basically, it shows how much "dominates" Bitcoin the crypto market in relation to all other cryptocurrencies. Values can vary between 0% (Bitcoin has no influence) and 100% (the whole market is Bitcoin). For example, if Bitcoin's market capitalization is $ 50 million from a total market capitalization of $ 100 million cryptocurrencies, Bitcoin domination will be 50%. Bitcoin dominance is a key indicator, used by investors to analyze Crypto market dynamics and estimate the performance of other coins compared to Bitcoin.
Why is it important to understand the dominant BTC
The correct understanding and use of Bitcoin dominance will help investors identify profitable opportunities and reduce risks. The fluctuations of this metric can reveal market trends and show the right time to invest in either bitcoin or other cryptocurrencies.
The dominance of BTC and its benefits for investors
- Understanding the current market phase: Analyzing the dominance of BTC, you can identify whether the market is growing, stagnation or decline. This can be helpful in making informed investment decisions.
- Identifying the season of Altcoins: When BTC dominance decreases, it is a strong indication that altcoins become more popular. For investors, this can be the ideal time to explore other coins.
- Forecasts for the reversal of market trends: one of the most valuable aspects of BTC dominance analysis is the ability to identify potential market tendency reversals, or so-called 'U-Turn' models.
- Understanding Bitcoin's consolidation phases: Increased Bitcoin dominance during cryptocurrency market can indicate a period when the price of bitcoin stabilizes.
Understanding the current market phase
When Bitcoin dominance increases
When the dominance of Bitcoin increases, its market capitalization grows faster than that of other cryptocurrencies. In general:
- Bitcoin "dominates" the market. Investors prefer to choose it to the detriment of Altcoins for added safety.
- Dominance increases are common in Bear (dropping) markets when investors sell higher risk coins and prefer to have bitcoin.
- Bitcoin dominance can also grow in Bull (growth) markets when Bitcoin has superior performance to other cryptocurrencies.
When the dominance of Bitcoin decreases
When the dominance of Bitcoin decreases, the phenomenon is often associated with the "Altcoin season". Altcoins prices grow rapidly, and Bitcoin loses market share. These periods are often short, but extremely profitable for investors. In such situations, investors have to quickly use these opportunities, because the "Altcoins season" does not last long.
Bitcoin dominance and identification of altcoins season
The season of altcoins is a period when alternative cryptocurrencies (ETH, ADA, BNB, etc.) grow rapidly and the dominance of Bitcoin decreases. This is often happening in Bullish markets, when investors are willing to risk more for larger earnings.
Indicators of a possible season of Altcoins include:
- Constant decrease in Bitcoin dominance.
- The high demand for a series of well -rated cryptocurrencies.
- The general growth of the capitalization of the cryptocurrency market.
It is important to note that altcoins tend to perform well for short periods. Therefore, synchronization is essential for maximizing winnings.
Bitcoin dominance and the reversal of market trends
A crucial aspect of this metric is the ability to predict the so-called "U-Turn" (market trends) models. Sometimes, the market can move from a (ascending) trend to a Bearish (descendant), and the analysis of BTC dominance can help anticipate these changes.
Example:
If you see that the dominance of Bitcoin begins to grow gradually in a general Bearish context, this is an indication that BTC again captures the market confidence. This could be a good time to invest before prices are up.
Understanding the Bitcoin Price Consolidation Phase
Another important use of Bitcoin dominance is in understanding the price consolidation phases. Generally, during Bearish periods, Bitcoin tends to retain their leader position, which involves a consolidation of the price.
This consolidation phase may indicate that the market is prepared for an increase. Investors that follow this trend could thus take advantage of any rapid increases in the price of BTC.
Tips for investors:
- If the dominance of the BTC is increasing in a stagnant market, it can be a good signal to move the funds from Altcoins to the BTC.
- It monitors the BTC dominance graphs available on platforms such as TradingView to identify these key moments.
How to calculate Bitcoin dominance
The dominance of Bitcoin is expressed percentage and can be tracked online on various platforms (eg tradingView), but you can calculate it alone using a simple formula:
Capitalization of BTC market / Capitalization of Crypto Market total = Bitcoin dominance index
Example:
- Bitcoin's market capitalization is $ 50 million.
- The total capitalization of the Crypto market is $ 100 million.
Calculation: $ 50 million ÷ $ 100 million = 50% Bitcoin dominance.
Thus, this value offers a quick look at the place occupied by Bitcoin in relation to the entire market.
How to follow the dominance of Bitcoin
You can see the graph of Bitcoin dominance on platforms such as tradingView, looking for the BTC.D (dominance capitalization of BTC market). This graph can become a useful tool to understand the general feeling of Crypto market and adapt your investment strategies.
Top 7 Factors affecting the dominance of BTC
Next, we will detail the main factors that influence the dominance of the BTC, analyzing how they contribute to the fluctuations observed in the market share of Bitcoin. We will explore the impact of the market feeling, the influence of global regulations, the dynamics of the development of altcoins, the cycles of the Crypto market, the institutional adoption, the macroeconomic factors and the technological progress, each of these factors playing a crucial role in determining the dominance of Bitcoin and in the general evolution of the cryptocurrency market.
The feeling of the market and the news
The news and perceptions of the global community play a major role in determining the dominance of the BTC. During periods when there are positive ads, such as institutional adoption (eg Tesla or Microstrategy, acquiring Bitcoin) or technological innovations (eg Lightning Network), the dominance of BTC tends to grow.
On the other hand, negative news, such as strict regulations in certain countries, security scandals or extreme volatility, can negatively influence this indicator, opening the path of altcoins.
Recent examples
- Positive News : ads about Bitcoin ETFs adopted on regulated markets.
- Negative News : The Ban of Mining in China from 2021, which caused a temporary decrease in the dominance of the BTC.
Increased popularity of other cryptocurrencies
The increasing popularity of altcoins, such as Ethereum (ETH), Cardano (ADA) or Sola (soil), can significantly affect the dominance of Bitcoin. These cryptocurrencies attract investors through their specific utility, redistributing capital to other Crypto projects.
Factors that contribute to increasing the popularity of altcoins:
- The launch of new technologies, such as Defi and NFTs, which bring increased visibility.
- The creation of new powerful communities that support their development and adoption.
Institutional adoption
The entry of institutional players on the Bitcoin market has a huge impact on the dominance of the BTC. Large investors, such as mutual funds, investment banks or Fortune 500 companies, influence the price of Bitcoin due to the massive traded volumes.
The major acquisitions made by companies such as Microstrategy or Square have led to the massive increase of Bitcoin perception as "digital gold", with the consequence of increasing the dominance of the BTC in the cryptocurrency market.
Macroeconomic factors
Global economic conditions, such as inflation rates, geopolitical instability and interest rates, play a significant role in the dynamics of the cryptocurrency market, strongly influencing the dominance of Bitcoin.
- In periods of economic instability, Bitcoin is often perceived as a "safe refuge", which can cause increased interest in the BTC.
- In contrast, stable economic conditions or interest increases can cause investors to look for other assets, diminishing BTC's dominance.
Technological progress
Technologies that improve the scalability and security of the Bitcoin network have an essential impact on its dominance. For example, the secondary implementation of solutions such as Lightning Network, meant to accelerate transactions and reduce taxes, increased BTC attractiveness.
Developments in progress:
- Segregate Witness (Segwit) allows smaller blocks and more efficient data transfer.
- Taproot Upgrade adds more confidentiality and efficiency for smart contracts.
As the adoption of these progress becomes more and more widespread, Bitcoin becomes more competitive and the dominance of BTC increases.
The emotions, the perception of investors and the government regulations
Last but not least, the emotions and perceptions of investors significantly influence the dominance of Bitcoin. For example:
- During periods of "Bull Market", Bitcoin attracts massive capital flows, the result being that the BTC dominance will increase.
- During the "Bear Market" periods, investors tend to orient themselves to speculative other schools or to leave the market temporarily, consequently the BTC dominance can decrease considerably.
Countries that adopt clear and favorable policies, such as Salvador, increase confidence in Bitcoin, which translates to a higher Bitcoin dominance. In contrast, new prohibitions or strict taxes on cryptocurrencies, such as in China or India, can diminish the attractiveness of the BTC.
Example: US and Security and Exchange Commission regulations can significantly change perceptions in global markets .
How to affect the Dominance of BTC the price of altcoins
One of the most important dynamics that any investor should understand is the relationship between the dominance of Bitcoin and the performance of Altcoins . We will continue to analyze how Bitcoin dominance influences altcoins and we will provide some essential tips for all those who want to invest in Bitcoin or altcoins.
In general, the prices of altcoins tend to follow the movements of the Bitcoin price. When Bitcoin grows, many altcoins follow the same trend, and when Bitcoin decreases, altcoins tend to decrease even more. Another key moment is the consolidation period of Bitcoin, when its price does not record major fluctuations and the Crypto Square is calm:
- During these periods, altcoins can experience small increases or a temporary increase in interest.
- However, it is important to monitor any sudden increase in the dominance of the BTC, which can signal a return of investors exclusively to Bitcoin.
Attention, a massive increase in the dominance of BTC can cause a true " straw fire " on the Altcoins market. During these periods:
- Interest for altcoins decreases dramatically.
- Trading volumes for altcoins are reduced.
- The prices of altcoins can drop rapidly, affecting the portfolios of unprepared investors.
Table: How to influence the dominance of Bitcoin (BTC.D) and the price of Bitcoin the prices of altcoins
| Bitcoin dominance (BTC.D) | Bitcoin price (USD) | Altcoin prices (USD) |
|---|---|---|
| Increasing | Increasing | Decrease or grow less than bitcoin |
| Increasing | Declining | Decrease more than bitcoin |
| Stable | Declining | decrease |
| Declining | Increasing | Grow more than Bitcoin |
| Declining | Stable | Stable or decrease less than bitcoin |
| Stable | Increasing | grow |
Tips for investors and final conclusions
If you are an investor and you still learn about the dominance of the BTC and the cryptocurrency market, here are some useful tips that will help you protect your portfolio:
Monitor the dominance of BTC and the price of Bitcoin
It follows closely not only the price of Bitcoin, but also the dominance of the BTC. This information can help you anticipate future trends and help you build a profitable investment strategy.
Diversify your portfolio
In stable periods, take into account the diversification of your investments. A diversified portfolio could include Bitcoin, consecrated cryptocurrencies such as ETH, Sol or Algo and possibly Stablecoins.
Do not make impulsive decisions
The cryptocurrency market is volatile. Avoid buying or selling on the basis of panic or based on the hype without careful analysis.
Use the Abarai platform
Abarai platform allows users to buy bitcoin and other cryptocurrencies, while offering valuable informative materials, which explain the functioning of the Crypto market.
In conclusion, the dominant Bitcoin will continue to be a major factor that will influence the cryptocurrency market. For investors, this index remains an essential indicator for understanding the dynamics of the cryptocurrency market, reflecting both the Bitcoin position in its quality as a dominant asset, as well as the general feeling of the market, the movement of capital flows and the potential trend changes.
If you want to know more about cryptocurrencies, you will find a series of articles and educational materials on the Abarai blog. We recommend that you read:
- The deception with the cryptocurrency launched by Donald J Trump? $ Trump a big sting?
- Cryptocurrencies to invest: How to build a Crypto trading portfolio
