Bitcoin Dominance

Bitcoin Dominance Explained

The Bitcoin Dominance chart is a measure of Bitcoin’s total market capitalization relative to all other non-Bitcoin digital assets in the crypto ecosystem. The chart is useful in measuring Bitcoin’s overall percentage share of the total ecosystem.

When Bitcoin’s dominance is high indicates that Bitcoin is outperforming all other crypto assets on a relative basis. Contrary to this, when Bitcoin’s dominance is low it suggests that other crypto assets are outperforming Bitcoin.

By analyzing this metric, investors are able to better understand whether Bitcoin is showing relative strength or weakness compared to the broader digital asset market.

FAQs

What is Bitcoin Dominance?

Bitcoin Dominance is a measure of Bitcoin’s market capitalization as a percentage of the total market capitalization of the broader ‘crypto’ industry. It serves as a proxy for how Bitcoin’s price is performing relative to the prices of all other cryptocurrencies.

Why is Bitcoin Dominance a useful metric?

Bitcoin’s dominance serves as a useful metric for investors to track how strong Bitcoin is performing relative to all other tokens and blockchain-based coins in the industry.

How is Bitcoin Dominance calculated?

Bitcoin’s dominance is calculated by using the formula below:

Bitcoin Dominance = Total Bitcoin Market Cap / Total Crypto Market Cap

What does an increasing or decreasing Bitcoin Dominance imply?

Bitcoin dominance often increases during bear market and/or during substantial market sell offs, creating Bitcoin’s status as a “flight to safety” investment. This typically occurs during periods of volatile downward price movements whereby investors and/or traders sell their other crypto and put those proceeds into purchasing Bitcoin. This results in an increase in Bitcoin dominance.

Are there any limitations to using Bitcoin Dominance as a trading/investing indicator?

Yes, there are limitations to using the Bitcoin Dominance metric, namely:

Bitcoin’s market capitalization is small relative to other more mature asset classes. This can result in data that is subject to short-term inconsistencies and/or outliers.
The market cap of all cryptocurrencies is a very broad metric that changes often. As such it is more so a rough approximation than an accurate statistic upon which investors/traders should base their decision making.

Therefore the Bitcoin Dominance chart should be used as a long-term indicator alongside other powerful Bitcoin metrics to ensure investors are able to accurately assess Bitcoin’s entire market structure.

DISCLAIMER

This information is for educational purposes only. Any Information found on this site is not to be considered financial advice.

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Bitcoin Dominance