Cryptocurrencies have witnessed growth at an exponential rate with the introduction of several cryptocurrencies. Yet, Bitcoin remains one of the most influential and the oldest cryptocurrency of all time. It is one of the most reliable and liquid crypto assets worldwide.
Investors have noticed several frequent trends in market circumstances by analyzing the patterns of Bitcoin’s engagement within the crypto market. Few investors began to model their trading activity after BTC domination. In particular, BTC’s dominance provides insight into the market that is now in play.
So, what is BTC dominance, and why is it significant? Let’s learn about it in detail.
What is BTC dominance?
BTC dominance refers to the percentage of the total market capitalization of the cryptocurrency market represented by Bitcoin (BTC). It assesses how dominant or influential Bitcoin is with other cryptocurrencies overall. The market capitalization of Bitcoin is determined by multiplying the BTC price at the moment by the quantity of BTC that has already been mined.
BTC dominance is frequently considered when assessing the state and performance of the cryptocurrency market as a whole. A higher BTC dominance indicates the outperformance of Bitcoin relative to other cryptocurrencies. In contrast, a lower BTC dominance indicates that the altcoins market share may exceed Bitcoin.
A Brief History of BTC Dominance
Since the launch of Bitcoin in 2009, BTC dominance has experienced substantial fluctuations. Early in the history of cryptocurrencies, Bitcoin was the sole digital asset, with a nearly 100 percent market share.
Bitcoin’s supremacy progressively faded as the cryptocurrency industry grew and new coins were released. Nevertheless, it dominated the cryptocurrency market for several years, frequently making up over 80% of the market share.
It wasn’t until 2017 that BTC dominance declined rapidly and reached around 33% in early 2018. However, after several market corrections, Bitcoin’s dominance started to increase again, and by early 2021, it returned with a 70% market share.
Due to investors’ increasing interest in alternative coins such as Ethereum and Cardano, BTC dominance has declined to 40% to 50% of the market share. Yet, Bitcoin continues to be the biggest and best-known cryptocurrency.
Factors that affect BTC Dominance
Several factors can affect BTC dominance, such as
Market Perception
The dominance of Bitcoin can change depending on whether markets are bullish or bearish. If investors are bullish about Bitcoin, its dominance might rise, but it might decline if they are more interested in alternative cryptocurrencies.
Innovation
Before 2015, altcoins were simple. But with the development of new technologies, several features are introduced into these altcoins, which Bitcoin lack. This could attract investor attention and take market share from Bitcoin’s declining BTC dominance.
Regulatory Environment
The regulatory environment may also have an impact on BTC dominance as changes in the system can lead to fluctuation in BTC dominance. Regulations that are friendly to Bitcoin may draw greater investment and boost its market value, which may boost BTC Dominance.
In contrast, strict regulations for Bitcoin could discourage investment and reduce its market capitalization, which eventually reduces BTC Dominance.
Significance of BTC Dominance
The significance of BTC Dominance lies in the fact that Bitcoin is a well-established and popular cryptocurrency in the market. Traders can use it as a predictor of the trends in the market. A high BTC dominance suggests that Bitcoin is outperforming other cryptocurrencies, and there is greater market optimism for Bitcoin.
Such scenarios suggest that investors turn risk-averse. It can be a good time for traders to lower their exposure to altcoins and raise their Bitcoin holdings.
Similarly, a low BTC dominance may indicate that investors are prepared to take on greater risk by investing in alternative cryptocurrencies. In such a case, traders may consider boosting their exposure to alternative currencies.
Additionally, if BTC dominance is consistently rising, traders may consider opening long positions in Bitcoin or assets with a Bitcoin connection in such a situation.
