Bitcoin dominance in simple terms
The bitcoin dominance index shows the share of its capitalization in the cryptocurrency market. Previously, the main digital coin and several other altcoins from the top 5 boasted huge market power. However, as cryptocurrencies develop, the dominance of bitcoin decreases. This is considered a good sign, as investors began to look at other assets.
Bitcoin dominance can be calculated as follows:
BTC Dominance Index = (BTC Market Cap / Total Industry Market Cap) * 100%
What does dominance show?
The Bitcoin Dominance Index is important for understanding the overall direction of the market. If the index goes down, then investors rushed towards altcoins. By this they show their confidence to take risks in order to find new gems.
If altcoins are actively sold and transferred to bitcoin, then risk aversion is growing in the market and there is a transition to a more “solid” cryptocurrency.
Is rising dominance always a positive indicator for Bitcoin?
No not always. For example, during a strong bearish trend, the total market capitalization can drop rapidly. At this time, some investors and traders buy Bitcoin for altcoins. And if the overall market capitalization falls, the share of BTC may even increase, as the BTC market capitalization is not declining at such a rapid pace. This trend is formed due to the fact that Bitcoin is perceived as a “safe asset”. But in general, such periods appear to be bearish for both Bitcoin and altcoins.