For beginners in the crypto space, assessing cryptos and their various market values can be an overwhelming experience. Moreover, you can find yourself bombarded with terms you’ve never heard of— market cap, hodl, FUD, FOMO, and assorted other jargon and abbreviations that don’t make sense to you — at least not yet. But there’s one concept you need to know and understand in order to make good investment decisions. It’s called Bitcoin Dominance.
WHAT IS BITCOIN DOMINANCE?
To understand what bitcoin dominance is, we need to know how market caps work. So, let’s use an example. Imagine a giant pie, one that represents all of the money in the market. Within the crypto-economic ecosystem, all of that money is known as the market cap.
As we know, bitcoin and Ethereum are the largest cryptos by market cap. Thus, they represent a larger share of the pie. The slice that bitcoin holds currently is what we know as bitcoin dominance.
Technically speaking, the bitcoin dominance (BTC.d) is an index. It represents the percentage of bitcoin’s market cap to the total market. For example, let’s say the total market cap is two trillion and bitcoin’s is one trillion. To calculate bitcoin’s dominance, we’ll need to divide the total market cap by that of bitcoin. In the case above, that would signify a 50% dominance.
BTC.D UPS AND DOWNS: WHAT IT MEANS
When the crypto market was just starting and bitcoin was the only cryptocurrency we knew, its dominance was absolute – 100% dominance. Now, after several years and more than 7000 coins later, Bitcoin’s dominance is significantly lower.
You may be asking at this point, “what does it mean when bitcoin’s market dominance goes up or down”? Once again, to understand what bitcoin dominance means, we have to look at these swings, all the while keeping an eye on the total market cap.
When Bitcoin’s dominance is falling, more money flows towards altcoins. This means that people prefer to put their money in alt coins. Usually, it starts with money flowing to Ethereum, then to other large caps, before settling into mid and small caps.
If Bitcoin’s dominance starts to rise, it means money from all markets is flowing into bitcoin. It can be because the market is bearish and people are trying to keep their BTC value safe. It can also be the result of some impactful news regarding bitcoin.
Over the past few months, we have seen how bitcoin’s dominance has fallen quickly. At the beginning of the year, dominance was over 70% and today, five months later, it is around 45%. Overall, this means that the alts have outperformed bitcoin.
In the end, the future is bright with altcoins. With Ethereum’s upcoming developments (ETH 2.0, EIP-1559 and so much more), we can only expect Bitcoin’s dominance to continue to fall and Alts to rise. Maybe this is when the real alt-season will officially begin.