In finance, the performance of different cryptocurrencies is often assessed by comparing their market capitalization or market cap. Bitcoin dominance is calculated by adding up the total value of all Bitcoins and dividing it by the total value of all other crypto: the altcoins. In this article, we will explain why this percentage may matter.
From one hundred to forty
In 2009, Bitcoin was still the only cryptocurrency, and thus Bitcoin dominance was, naturally, at 100%. With the introduction of Ethereum in 2015, this changed; especially after the big ETH price hikes of 2017. And, of course, more and more different crypto have only been added since then.
Of course, it is possible to construct a similar dominance graph for each individual cryptocurrency. If we look at Ethereum, for example, we see that Ethereum's dominance has fluctuated between about 15% and 20% over the last year. This means that Bitcoin and Ethereum together account for more than 70% of the total value of the crypto market.
Why is Bitcoin dominance relevant?
Bitcoin dominance indicates Bitcoin's relative importance compared to other cryptocurrencies, or altcoins. Why is this percentage useful to consult?
- The dominance chart is generally a lot less volatile than prices.
- You cannot compare crypto prices: some are hundreds or even thousands of dollars per "coin" and others are fractions of a cent. However, the price of the crypto says nothing about its market value.
Because the dominance chart is much more stable and looks at the comparison in market cap, it is more useful for spotting and analyzing trends than single prices.
How should one interpret Bitcoin dominance?
How someone interprets Bitcoin dominance is person-specific. As an investor, it is always important to draw your own conclusions. Nevertheless, there are a few salient points that we pass along.
Bitcoin dominance is primarily a measure of Bitcoin's market position relative to altcoins. But, in the past, analysts have also spotted some trends using Bitcoin dominance.
For example, they noticed that halfway through a bull market, Bitcoin dominance often drops. Investors seem to cash out their gains in Bitcoin and move more into speculative altcoins. That could signal the beginning of a new altcoin season. A moment many traders like to predict. Bitcoin dominance often rises again during times of uncertainty because Bitcoin is still considered a safer haven than altcoins, which tend to have more volatility.
The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.