As the first and most well-known cryptocurrency, Bitcoin has become the benchmark for the entire crypto market. One metric that investors use to gauge the overall health of the crypto market is Bitcoin dominance. Bitcoin dominance refers to the percentage of the total cryptocurrency market capitalization that is held by Bitcoin. In this article, we will explain how to read Bitcoin dominance and what it means for investors.
What is Bitcoin Dominance?
Bitcoin dominance is a measure of Bitcoin’s market capitalization compared to the total market capitalization of all cryptocurrencies. It is expressed as a percentage and represents the proportion of the total market value of cryptocurrencies that is held by Bitcoin.
For example, if Bitcoin’s market cap is $100 billion and the total cryptocurrency market cap is $200 billion, then Bitcoin dominance is 50%. This means that Bitcoin accounts for half of the total value of all cryptocurrencies.
Why is Bitcoin Dominance Important?
Bitcoin dominance is important because it provides investors with a quick and easy way to gauge the overall health of the cryptocurrency market. If Bitcoin dominance is increasing, it suggests that investors are becoming more bullish on Bitcoin and less interested in other cryptocurrencies. Conversely, if Bitcoin dominance is decreasing, it suggests that investors are becoming more interested in other cryptocurrencies and less bullish on Bitcoin.
Bitcoin dominance can also be used to compare different periods in the cryptocurrency market. For example, if Bitcoin dominance was 80% in 2017 and 50% in 2021, it suggests that the cryptocurrency market has become more diverse and that there are now more viable alternatives to Bitcoin.
How to Read Bitcoin Dominance
Bitcoin dominance can be read in a number of ways. Here are some of the key things to look for:
Trends Over Time: Bitcoin dominance can be plotted on a chart to see how it has changed over time. This can help investors to identify trends and make informed decisions about when to buy or sell cryptocurrencies.
Correlations with Other Metrics: Bitcoin dominance can be compared to other metrics, such as the total cryptocurrency market capitalization or the price of Bitcoin. This can help investors to identify correlations and make informed decisions about which cryptocurrencies to invest in.
Differences Across Exchanges: Bitcoin dominance can vary depending on which exchange you look at. This is because different exchanges list different cryptocurrencies, and some cryptocurrencies have more liquidity on certain exchanges. Investors should be aware of these differences and consider them when making investment decisions.
Bitcoin Dominance vs. Altcoin Dominance: Altcoin dominance refers to the percentage of the total cryptocurrency market capitalization that is held by all cryptocurrencies except Bitcoin. Investors can compare Bitcoin dominance and altcoin dominance to see how they are changing over time and make informed decisions about which cryptocurrencies to invest in.
Conclusion
Bitcoin dominance is a useful metric for investors who want to gauge the overall health of the cryptocurrency market. By tracking Bitcoin dominance over time and comparing it to other metrics, investors can make informed decisions about which cryptocurrencies to invest in. However, investors should be aware that Bitcoin dominance can vary across different exchanges and should consider this when making investment decisions.