Get to Know Bitcoin Dominance and Its Impact on The Crypto Market
What is Bitcoin Dominance?
Bitcoin dominance is one of the most common indicators used to measure the percentage of the total crypto market capitalization value that belongs to Bitcoin. The higher the Bitcoin Dominance, the greater influence Bitcoin has on the crypto market.
Calculating Bitcoin dominance is straightforward. Divide Bitcoin’s market capitalization by the overall crypto market capitalization. For example, if Bitcoin’s current market capitalization is $2.12 trillion and the total crypto market capitalization stands at $3.46 trillion, the result is 0.613, which translates to 61.3% Bitcoin dominance.
Fortunately for investors, there’s no need to manually perform these calculations. Reputable platforms like CoinGecko and CoinMarketCap provide real-time Bitcoin dominance data. Changes in this metric can offer insights into market trends and sentiment, helping investors to navigate the market.
How to Read Bitcoin Dominance
Historically, the broader crypto asset market has often mirrored Bitcoin’s market capitalization movements. This is due to Bitcoin’s position as the leading and largest crypto, favored by both retail and institutional investors.
When the Bitcoin dominance rate is high and the price of Bitcoin is increasing, it indicates that investors are making Bitcoin as their primary choice. Therefore, an increase in Bitcoin’s price often directly correlates with a rise in its dominance.
Meanwhile, when Bitcoin dominance is low and the price of Bitcoin is increasing, it can mean that investors are shifting their funds from Bitcoin to other crypto (altcoins). The decline in Bitcoin dominance numbers to low levels is considered a sign that altseason is about to occur. Altseason is a period where altcoins experience more substantial price surges than Bitcoin.
Here is an easy way to read Bitcoin dominance movements and their impact on market conditions:
| Bitcoin Dominance | Bitcoin Price | Market Condition |
| Uptrend | Uptrend | Bitcoin is out performing altcoins. Market sentiment is positive towards Bitcoin. |
| Uptrend | Downtrend | Altcoins perform better than Bitcoin when the overall crypto asset market sentiment is negative. In the end, it can also have a negative impact on altcoins. |
| Downtrend | Uptrend | Altcoin out performing Bitcoin, a market bullish sign. Market sentiment is positive towards altcoin rather than Bitcoin. |
| Uptrend | Downtrend | Both Bitcoin and altcoins are underperforming, a sign that the market is bearish. |
Bitcoin Dominance Movement Trends
As the first and largest cryptocurrency, Bitcoin had a market capitalization of up to 99% at its launch. Even with Ethereum’s launch in 2015, Bitcoin’s dominance remained around 90%. A significant shift began in 2017 with the growth of Ethereum and the emergence of new altcoins through Initial Coin Offerings (ICOs). This surging interest in Ethereum and various altcoins caused Bitcoin dominance to plummet from 96% in February 2017 to 37% by early 2018.
Following the cooling of the ICO fever and altcoin price corrections, Bitcoin’s price rebounded, leading to an increase in its Bitcoin dominance. Ahead of the Bitcoin halving in 2020, Bitcoin dominance again climbed, settling into the 60%-70% range.
Post-halving, altcoins experienced another surge, fueled by the momentum of Decentralized Finance (DeFi) Summer. This period saw DeFi tokens achieve significant price increases, triggering an altseason in 2021 that pushed Bitcoin dominance back down to below 50%.
However, once the altseason ended, Bitcoin dominance recovered along with a rising Bitcoin price. Now, driven by the widespread adoption of Bitcoin thanks to Bitcoin ETFs, Bitcoin dominance is back to the 60% area.
Factors Affecting Bitcoin Dominance
The primary factor influencing Bitcoin dominance is overall market conditions. For example, during periods of high inflation, investors often seek to hedge their assets, and Bitcoin becomes a preferred choice. Altcoins, which typically carry higher risk and price volatility, tend to be avoided. As a result, Bitcoin dominance is likely to increase.
Conversely, under favorable market conditions with abundant liquidity, investors often choose riskier assets in pursuit of higher potential returns. In these situations, funds may shift from Bitcoin to altcoins that offer the potential for more significant price increase. As a result, Bitcoin dominance may decline, as observed in 2018 and 2021.
Utilizing the Bitcoin Dominance Indicator
Bitcoin dominance has a variety of uses that investors can utilize to read market conditions and make decisions. The following are some of its uses:
- Identifying Market Trends.
Monitoring Bitcoin dominance movements can help investors identify overall market trends. It reveals whether the market is in an uptrend or downtrend, and whether Bitcoin or altcoins are currently attracting more investment. By knowing these trends, investors can determine optimal entry or exit points and manage their crypto portfolio. - Timing Market Entry and Exit
Bitcoin dominance movements can indicate shifts in market trends, providing clues for entry and exit points. For example, a rising Bitcoin dominance alongside falling Bitcoin prices could be an early signal that altcoins are entering a downward trend. Therefore, investors can exit altcoins and choose Bitcoin or other assets. - Managing a Crypto Asset Portfolio
Bitcoin dominance is valuable for active portfolio management. For example, if Bitcoin dominance drops while altcoin prices rise, this could signal an impending altseason. In this condition, investors can increase the portion of altcoins in their portfolio.