Definition
Bitcoin dominance, also known as the Bitcoin dominance index, is the ratio of the market cap of Bitcoin to the rest of the cryptocurrencies, which shows the relative strength of Bitcoin over altcoins.
Understanding the term
Market cap is a key indicator in determining the dominance and popularity of cryptocurrencies. Approximately 60% of the market cap of cryptocurrencies is accounted for by Bitcoin.
Traders and investors can use this metric to adjust their trading strategies. A general rule of thumb is that the total crypto market cap will follow the direction of Bitcoin. The influence of Bitcoin is partly due to its status as the first and most widely recognized cryptocurrency.
The Bitcoin dominance index includes only proof-of-work (PoW) coins, where variables such as market trends, bull markets, and the emergence of new coins influence this metric. It excludes all initial coin offerings (ICOs), stable coins, and other centralized projects.
In contrast, increases in dominance usually signal a weakening in the crypto sector and a positive for proponents of Bitcoin. Bitcoin dominance can have different implications based on various timeframes.
Currently, the Bitcoin dominance ratio can assist traders in gaining a deeper understanding of crypto market conditions. It is possible to determine whether altcoins or bitcoin are on the rise depending on the trends within the ratio, as well as the price of Bitcoin.
Takeaway
Bitcoin dominance is a ratio that helps investors understand if altcoins show an uptrend or downtrend against Bitcoin. It can also aid in capital allocation to build a strong portfolio with Bitcoin and altcoins.