Did you know that Bitcoin Dominance Chart is an important tool to spice up your trading and investing decisions in cryptocurrency?. This is because Bitcoin gathers more attention in the market due to it constitutes a large portion of the entire crypto market cap.
So as a trader who trades other cryptocurrencies aside from BTC (Altcoins), you should have good knowledge of the BTC dominance chart, so that you don’t SHORT Altcoins when you’re supposed to LONG.
In this article guide, we are going to educate you on the Bitcoin Dominance Chart, and what you should look out for.
What is Bitcoin Dominance
The Bitcoin dominance chart is the ratio between the market capitalization of Bitcoin to the total market cap of the entire cryptocurrency market. When we compare this ratio to the trend of Bitcoin itself, we can learn more about what opportunities the current market environment offers.
To gain a better understanding of what Bitcoin dominance is, traders need to understand what market capitalization is — and why it’s important.
What Is Crypto Market Capitalization?
In the case of a cryptocurrency such as Bitcoin, market capitalization (“market cap”) means the total value of all the coins that have so far been mined. The market cap is calculated by multiplying the number of coins in circulation by the current market price of a single coin.
For example, as of June 2022, there were approximately 19.07 million bitcoins in existence. If the price of Bitcoin was trading at $19,200, then the total market cap would be 19.07 million x $19,200 = $366 billion. This means the total value of the Bitcoin network is $366 billion.
The $366 billion figure by itself doesn’t have as much meaning until you begin to compare it to other markets. For example, the total estimated value of the gold market is near $891 billion.
One of the benefits of cryptocurrencies is that it’s easy to determine how many coins are in existence, as well as the price of those coins. As a result, determining the total market cap of the entire crypto market is fairly simple to find and graph on a chart.
What Does BTC Dominance Chart Mean
Bitcoin dominance is described as the ratio between the market cap of Bitcoin to the rest of the cryptocurrency markets. For many years, while Bitcoin was far and away from the largest cryptocurrency – and one of the few in existence – its dominance was much closer to 100% than it is today.
What Does High Bitcoin Dominance Mean
The most important thing about Bitcoin Dominance is that it can help you understand if altcoins are in a downtrend or uptrend against BTC. When BTC Dominance increases, alts, on the whole, lose value against BTC.
What Does Low Bitcoin Dominance Mean
Bitcoin’s price dip could mean a lowered dominance in that users are moving funds away from BTC into other altcoins, but a price dip can also have little to do with dominance as a whole. If Bitcoin dominance drops, users might certainly expect an altcoin bull run and can trade accordingly.
How Does Bitcoin Dominance Affect Altcoin
BTC dominance can directly affect altcoins, as it showcases how much of the market’s trading volume is in BTC vs. how much of the trading volume is in altcoins. Generally, if Bitcoin dominance is up, then traders recommend one has more of their crypto holdings in BTC than in altcoins
Bitcoin Dominance Chart View
Although Bitcoin dominance is an interesting statistic to look at, one should keep in mind that it does not reflect its real value (especially because of forked and pre-mined coins, which impact the total market cap in a very unnatural way).
Also worth noting, is that market cap does not mean an influx of money. It is just a measurement based on the circulating supply and current market price.
During the times when Bitcoin was the only cryptocurrency tradeable on exchanges, its dominance was roughly 100%. Today, with more cryptocurrencies in the space, its dominance is certainly less than 100%, but that is not necessarily a good or bad thing. It is only a tool that may give us a better perspective of how the crypto space is evolving.