Following up on last week’s Crypto Market Capitalization article, it’s only right that we discuss bitcoin dominance in this post. After all, it just hit its two-year low and that could potentially be exciting news for those who have been anticipating the altcoin season to go in full swing!
Disclaimer: Our content is intended to be used and must be used for informational purposes only. It is very important to do your own research and analysis before making any investment based on your personal circumstances.
What is BTC dominance?
Well, in a market in which one asset does not occupy the majority of the total market capitalization, we would call it the share of BTC’s market capitalization compared to the market.
But in the very particular context of the crypto market, we can only call it dominance. Indeed, Bitcoin’s market capitalization represents more than 50% of the total market capitalization. This figure, which is precisely 53.4%, represents the dominance of BTC in the crypto market.
How does it work?
It’s not complicated, but it deserves an explanation. If investors as a whole buy BTC and altcoins in the same proportion, the total market capitalization of the market will increase but the dominance of Bitcoin will remain the same.
Let’s say that before a new capital injection into the market, the market capitalization of BTC is 3 and that of altcoins is 1, the total market capitalization is therefore 4 and the dominance of BTC is 3/4 or 75%.
If an investor buys 0.75 of BTC and 0.25 of altcoins, the market capitalization of BTC is now 3.75, the market capitalization of altcoins is 1.25 and the market capitalization is 5. The dominance of BTC is now 3.75/5 or 75%. So nothing changes!
Where can we find this data?
There are many sources on the internet where you can get this information, some more accurate than others such as Glassnode while others are free with concise and reliable information such as Coinmarketcap.
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How to interpret dominance?
You can also, with Tradingview, observe the dominance of BTC in real time with the ticker BTC.D. Why is this important? Well, because it allows you to “speculate” on its future evolution, just like any other stock chart.
On the chart above, we can see that BTC’s dominance is at an important support zone. If the latter breaks, there is a strong chance, according to the laws of technical analysis and price action, that BTC.D will test the 52 and 50 level.
Why is this interesting?
Well, because it allows us to anticipate the market cycles between Bitcoin and Altcoins. Indeed, if the dominance of BTC decreases, it means either : A relatively larger inflow of new capital into altcoins than into BTC.
Or it represents a transfer of capital between BTC and altcoins, with participants taking their profits from BTC and injecting them into the altcoin market.
Will the alt season start?
The alt season has already started with some altcoins registering more than several thousand percent of increase. Is the alt season in full swing? Or can we expect a more exciting alt rally around the corner? Unfortunately, in the crypto market, with things happening at the speed of light, we can neve know for sure. For now, we must take the dominance analysis for what it is, an analysis and not a crystal ball to foretell the future! 4C Trading’s SmartBots.
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