What is BTC Dominance?
When discussing cryptocurrencies, we cannot forget – Bitcoin (BTC), the most influential crypto coin. BTC is the most reputable and generally acknowledged cryptocurrency in the world. With its first-mover advantage and broad popularity, Bitcoin significantly impacts the whole crypto industry. Bitcoin dominance reflects Bitcoin’s effect on the cryptocurrency market.
BTC dominance is a percentage that shows how much of the total cryptocurrency market cap is made up of Bitcoin. It’s calculated by dividing Bitcoin’s market capitalization by the total market capitalization of all cryptocurrencies.
It can measure Bitcoin’s authority over the entire cryptocurrency market. It can also be used to see how various events or news announcements affecting Bitcoin may also affect the rest of the market.
How does BTC dominance work?
BTC dominance is a metric that measures Bitcoin’s market capitalization as a percentage of the total cryptocurrency market capitalization. In other words, it’s a way to track how much influence BTC has over the entire cryptocurrency market.
It is determined by taking Bitcoin’s market capitalization and dividing it by the total market capitalization of all cryptocurrencies. This number is then expressed as a percentage.
For example, if Bitcoin’s market cap is $100 million and the total market cap for all cryptocurrencies is $1 billion, then BTC dominance would be 10% (100 million / 1 billion).
BTC dominance can be used to track the popularity of Bitcoin over other cryptocurrencies. It can also identify opportunities and trends in the cryptocurrency market. For example, if BTC dominance is declining, it could be a sign that investors are reallocating from Bitcoin and towards other cryptocurrencies or asset classes.
What are the benefits of BTC dominance?
There are a few benefits that are worth mentioning. Firstly, it gives investors and traders a clear view of the market and how different cryptocurrencies are performing. This can be helpful when making investment decisions, as you can see which currencies are in demand and which ones are on the decline.
This metric also makes it easier to trade cryptocurrencies. When all coins are grouped, it can be challenging to determine which currency is being traded and at what price. With BTC dominance, the prices of all the coins are converted into BTC and displayed as a percentage. This makes it easier to understand the market and make informed trading decisions.
Finally, it could have a positive impact on the overall crypto market. By reigning in the wild fluctuations that can occur when multiple cryptocurrencies are traded at once, it could help to stabilize the market and encourage more widespread adoption.
Using BTC dominance to trade crypto
At any moment, BTC dominance is a sign of who has a firmer grasp on the market - whether investing in Bitcoins is profitable or whether altcoin investments offer bigger upsides. The ratio might reveal which currency has the most potential among Bitcoin and Altcoins.
Check Bitcoin’s price patterns in that time frame after the trend around the BTC dominance ratio has been identified. Following that, a basic process may be utilised to develop a plan.
• If the ratio rises and Bitcoin rises, purchase bitcoin.
• If the ratio rises and Bitcoin falls, sell altcoins.
• If the ratio is falling and Bitcoin is rising, then buy altcoins.
• If the ratio declines and Bitcoin declines, sell Bitcoin.
Investors can find trading opportunities once the approach has been set.
Trading at extremes is another method. From 2018 to 2021, BTC dominance reached a high of 74 percent and a low of 35 percent. It is improbable that the ratio will rise above or below its previous highs and lows. A reversal is possible when the ratio approaches these historic highs and lows. As a result, there is a strong probability that the ratio will decline at an exceptionally high reading and vice versa. It is highly unusual for the dominance ratio to deviate from its normal range. As a result, when such a situation occurs or the ratio approaches certain levels, it provides strong trading possibilities.
Thus, the BTC dominance ratio can assist in identifying future trading opportunities.
BTC dominance is a percentage that shows how much of the total cryptocurrency market cap is made up of Bitcoin.
Knowing BTC Dominance rate is essential because it can tell you a lot about the overall market and how people are trading. For example, if the ratio is high, Bitcoin is doing well, and people are investing in it. If the ratio is low, people are investing in other cryptocurrencies instead.
Keep an eye on BTC dominance to understand where the market is heading!
Author: Priya Kumari
Priya is a passionate content writer and the co-founder of Finendorse. She is an enthusiastic crypto investor and has a huge interest in the upcoming digitisation age.