Bitcoin is the first digital and decentralized cryptocurrency, and remains one of the most reputable cryptocurrencies in the world. Given its huge market capitalization, which exceeds many of the largest altcoins combined, Bitcoin exerts a massive influence on the entire crypto market.
Bitcoin dominance measures the percentage of the cryptocurrency market that can be attributable to Bitcoin. So why does this matter?
This article explains what Bitcoin dominance is, how it works, and how you can use it to better understand market trends.
What is Bitcoin dominance?
Bitcoin dominance is the ratio between the market capitalization of Bitcoin to the total market cap of the entire cryptocurrency market. It gives a sense of Bitcoin's value relative to other cryptocurrencies, and is frequently used by investors and traders to try to help them make better investment decisions.
How to calculate Bitcoin dominance
You can arrive at the Bitcoin dominance index by simply dividing the market capitalization of Bitcoin by the market cap of all other cryptocurrencies:
Bitcoin dominance = Market cap of BTC / Market cap of all other cryptocurrencies
Let's assume that the Bitcoin market cap is $65 million and the total crypto market cap is $100 million. In this case, by using the formula, Bitcoin's dominance is 65%.
Real Bitcoin Dominance
Some traders use a variant of Bitcoin dominance called the Real Bitcoin Dominance Index, which only takes into account coins that rely on the Proof of Work consensus mechanism. The rationale for this approach is that Real Bitcoin Dominance Index is committed to tracking the movement of coins that have the potential to be used as a decentralized means of exchange in the future.
How to calculate Real Bitcoin Dominance
The Real Bitcoin Dominance Index is calculated by dividing Bitcoin's market capitalization by the market cap of Bitcoin and other PoW cryptocurrencies:
Real Bitcoin Dominance Index = Bitcoin Market cap / (Market cap of BTC + Market cap of other PoW cryptocurrencies)
A point of distinction between Real Bitcoin Dominance and Bitcoin dominance is that Real Bitcoin Dominance excludes ICOs and stablecoins, given their association with centralized intermediaries. In early 2024, the Real Bitcoin Dominance Index sar around 70%, down from its recent years' high of 85%, which occurred in December 2019.
History of Bitcoin dominance
In 2017, the ICO boom and emergence of numerous altcoins led investors to start using Bitcoin dominance to determine if alternative currencies were experiencing an upswing or a downturn relative to Bitcoin's price.
While the index started to be used in trading communities around 2017, it didn't become popular until the altcoin boom of 2021. CoinMarketCap and TradingView were some of the early platforms to monitor Bitcoin dominance and popularize it as a way to observe market sentiment and trends.
Until 2017, Bitcoin accounted for as much as 95% of the total crypto market cap, given the previous lack of competition from other cryptocurrencies. In early 2018, due to the ICO boom and the rising popularity of other blockchains like Ethereum and Solana, BTC dominance fell to an all-time low of 37.6%. In 2019, when Ethereum suffered a price crash of 87%, BTC dominance surged back up to around 71%.
In 2024, Bitcoin dominance sits at just above 51%.
How is Bitcoin dominance correlated with market capitalization?
As seen above, Bitcoin dominance uses market capitalization as a primary factor. But how do you calculate market cap?
Market capitalization is the total value of the cryptocurrency, i.e., the total number of coins that have been mined multiplied by the price of a single coin:
Market capitalization = Total number of coins mined x Price of a single coin
The market cap of any cryptocurrency indicates how popular it is among investors. It is used by investors to get a holistic picture of the currency's position relative to other coins in the crypto market.
Generally speaking, large-cap cryptocurrencies are those with a market cap of $10 billion. Mid-cap cryptocurrencies are more volatile but might also offer more growth potential. Small-cap cryptocurrencies may have a lot of potential for short-term growth, but are frequently quite volatile and are generally seen as a more risky crypto investment.
In January 2024, The circulating supply of Bitcoin was over 19.6 million and the price of a single Bitcoin was about $42,997. By multiplying the two, we arrive at Bitcoin's market cap in that month: $843 billion.
Historically, the direction of the overall crypto market cap has followed Bitcoin's market cap. This is primarily due to Bitcoin's position as the leading cryptocurrency in the crypto market.
Why is Bitcoin the most popular cryptocurrency for investors?
Bitcoin has emerged as the “gateway cryptocurrency” and is usually the first investment that crypto traders make before acquiring other cryptocurrencies. This is due to a few reasons:
BTC has high visibility as the most popular cryptocurrency
BTC is available on nearly every crypto exchange
BTC's supply is deflationary due to its halving mechanism
As market demand rises and investors move to acquire cryptocurrency, Bitcoin's price rises and usually most other cryptocurrencies will follow Bitcoin’s lead. There has therefore usually been a positive correlation between BTC and the overall market cap of the crypto market.
What factors influence BTC dominance?
While there are several factors that influence market conditions and BTC dominance, some are more significant than others.
Changing market trends
Over the years, with the growth of altcoins, BTC has lost a significant portion of its market share. This is because chains like Ethereum boast programmable smart contracts and can host decentralized applications (dApps).
While dApps be deployed on the Bitcoin network, especially after updates like SegWit and Taproot, there are still bottlenecks to be addressed since the chain is not built from the ground up to tackle these hurdles.
Usually, when Bitcoin dominance rises, it means that people are investing more in Bitcoin compared to altcoins. This means one of two things: either BTC is rising faster than altcoins or it's falling slower.
Bull markets and bear market
A general rule of Bitcoin dominance is quite simple: altcoins rise hard and fall harder.
In a bull market, altcoin popularity rises. This can cause investors to turn to altcoins, NFT projects, and riskier assets in the hope of seeing big returns. This will cause BTC dominance to fall.
In bear markets, on the other hand, BTC dominance usually rises because investors may turn to cryptocurrencies that have stood the test of time.
On-ramping via stablecoins
The rise of stablecoins, cryptocurrencies whose price attempts to maintain a stable value by being pegged to a stable asset like the US dollar, has put prolonged pressure on BTC dominance. In particular, during a bear market or other periods of volatility, stablecoins are frequently utilized as a cryptocurrency perceived to be less volatile than many others.
Stablecoins may be used by more risk-averse investors when market conditions are volatile. This allows crypto-native investors to stay within the crypto space during periods of extreme market volatility.
Stablecoins currently have a market valuation of roughly $134 billion. Tether, the largest stablecoin, has a market cap of about $95 billion, up from $4.1 billion at the start of 2020. The market value of the second largest stablecoin, USD Coin, is $25.4 billion.
As a result of stablecoin on-ramping, the share of the entire crypto market valuation attributed to Bitcoin has been diluted and is shrinking. With the fall of USTC in 2022, however, this trend is not necessarily guaranteed to continue.
New coins and projects
At present, there are thousands of cryptocurrencies in existence, with a total market cap of over $1 trillion. NFT collections such as VeeFriends and CryptoPunks have also emerged as alternative crypto assets, which could be favorable for altcoins given that most NFTs are on these blockchains (such as Ethereum).
How to use Bitcoin dominance
Bitcoin dominance is a metric that measures the percentage of the total crypto market cap that is represented by Bitcoin. It can be a useful metric for evaluating the health of the overall cryptocurrency market.
Below are a few ways to use this metric.
Consideration in managing risk
Investors can use BTC dominance as one factor to help try to manage their overall risk exposure to the cryptocurrency market.
For example, if the value of BTC is decreasing but Bitcoin dominance is increasing, that could be an indication of a potential bear market for altcoins. In that case, investors who are heavily invested in altcoins may consider selling some of their positions and moving into Bitcoin.
Investors might use BTC dominance as a barometer to help them gauge the overall market sentiment and make decisions about how they should diversify their crypto portfolio.
Increase altcoin exposure
Bitcoin dominance may also be used by traders to try to better understand which cryptocurrencies have the most potential.
When more capital flows into altcoins, Bitcoin's market cap gets diluted and BTC dominance may start falling. Observing the market in this period may help certain investors identify promising projects.
Bitcoin dominance cycle
The rise and fall of cryptocurrencies is cyclical and can generally be observed in the following order:
1. BTC rises
2. Large cap alts rise
3. Med cap alts rise
4. Small cap alts rise
5. BTC begins to fall (but others still keep rising)
6. Large cap alts begin to fall (med and small continue as they have momentum)
7. Med cap alts start to fall (small cap keep pushing)
8. Finally small cap also crashes
For example, if the value of BTC is increasing but Bitcoin dominance is decreasing, that could be an indication of a potential bull market for altcoins. In that case, investors who are holding mostly Bitcoin may want to consider diversifying their portfolios by investing in altcoins that could appreciate in price.
Resources where to track Bitcoin dominance
Bitcoin's dominance changes with crypto markets, so it's tricky to keep your finger on the pulse of constantly changing market trends. Fortunately, there are several sites, tools, and platforms that allow you to easily track Bitcoin dominance:
MoonPay Price pages
MoonPay's new Bitcoin Price page will allow you track the live price, market cap, supply, history, and other metrics for cryptocurrencies like Bitcoin, Ethereum, and more.
CoinMarketCap
CoinMarketCap is a popular site that allows you to view Bitcoin dominance on a daily basis, as well as other cryptocurrency metrics such as price, market cap, 24-hour volume, and coin rankings across crypto exchanges.
CoinGecko
Similar to CoinMarketCap, CoinGecko gives you a broad overview of the crypto market, with metrics like live and historical price, volume, circulating supply, and market cap for thousands of cryptocurrencies.
TradingView
TradingView is a site that allows you to view metrics like Bitcoin dominance, TTV (total value locked) rankings, overall wallet addresses, gainers and losers, and other market trends for different cryptocurrencies.
Closing thoughts: Is Bitcoin dominance good or bad?
Bitcoin dominance is a metric that can be used to better understand crypto markets, identify potentially promising projects, and help make decisions about how to balance one's crypto portfolio.
It's a controversial metric, however. Some people believe Bitcoin dominance has been relevant in the past only because there were very few cryptocurrencies in existence. In time, they argue, Bitcoin will have less influence on the market.
Bitcoin dominance is nonetheless a popular metric, especially among Bitcoin proponents.
Did you know? You can pay with Bitcoin
Where to buy Bitcoin (BTC)
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Still not sure how to buy Bitcoin? View our beginner's guide to buying Bitcoin.
How to sell Bitcoin (BTC)
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Simply enter the amount of BTC you'd like to sell and enter the details where you want to receive your funds.
