Bitcoin dominance is a frequently quoted statistic in the crypto world. In fact, CoinGeko lists BTC Dominance right beside ETH gas prices on its website banner which underscores the importance of the metric, but what is BTC dominance, and why does it matter? In this article, I'll provide a brief overview of what Bitcoin dominance is and why it does (or possibly doesn't) matter.
Bitcoin dominance is simply a measure of the market cap of Bitcoin to the market cap of the crypto market as a whole. In other words, BTC dominance shows the total valuation of the Bitcoin supply relative to the valuation of the so called "alt coins." I'd like to make a quick point that "alt coin" is simply a way of saying any coin that isn't Bitcoin. Simply being an "alt coin" doesn't mean that the coin is good or bad, just that it isn't Bitcoin.
General Concept of BTC Dominance
Although the concept of Bitcoin dominance is quite straightforward, the significance can be a bit more confusing in my opinion. As with the stock market, analysts use any data they can find to try and predict price movements. BTC dominance is no exception, and some people use BTC dominance to anticipate changes in alt coin or BTC prices much the same way as analysts read charts for technical analysis.
In addition to being a predictive measure, Bitcoin dominance is sometimes used as something akin to the fear/greed index in traditional stocks. Cryptos in general are thought of as volatile assets, at least more so than traditional mutual funds and bonds. Although cryptos are volatile, some people feel that Bitcoin is a form of digital gold that, although it is still a crypto, is more stable and predictable than the alt coins. According to this interpretation, Bitcoin dominance represents the degree to which people in the crypto market are seeking the relative stability of bitcoin compared to the relatively higher risk of alt coins.
Bitcoin dominance is not a stagnant measurement and can change as the market cap of Bitcon and alt coins change. Some of the factors that can cause an increase in Bitcoin dominance are increases in the price of BTC as well as decreases in alt coin prices. Decreases in BTC dominance could come from increases in alt coin prices, new alt coin launches, or a falling BTC price.
Bitcoin dominance isn't without its drawbacks, and there can be a wide degree of variance in the way that the market cap metrics used to derive Bitcoin dominance are calculated. For example, low liquidity alt coins with a high price can throw off metrics depending on the way in which the market cap for the alt coin is measured. Likewise some may point out that BTC dominance is simply a snapshot of the current market caps of BTC vs the general market and lacks predictive value.
In summary, Bitcoin dominance is a simple way of measuring the market cap of Bitcion to the cryptocurrency market in general. Although there are criticisms of the measure, BTC dominance is still a useful metric for describing the degree to which Bitcoin's market cap compares with the rest of the crypto market. It is simply one more tool that crypto users have for gaining a better understanding of the current state of the market.
Thanks for reading!