Technical Analysis

Bitcoin Dominance

For today’s post I am going to look at the metric that shows how the price Bitcoin (BTC) is doing compared to the rest of the crypto market in general. This can be a useful indicator to give you an idea of how the money is flowing between Bitcoin (BTC) and other alt-coins, and what this can tell you about the general market conditions.

For the usual disclosure, I am not a financial advisor, I don’t even work in finance at all. My day job is as a telecommunications software engineer. Treat everything you read here as some educational resources and not financial advise.

What Is Market Cap

In case you are not familiar with the term market cap, as it is important for this discussion, it is basically the total value stored in an asset like a crypto. To figure out the market cap of say Bitcoin (BTC), we take the current price and multiply that by the total supply. Looking at the values for Bitcoin (BTC) right now:

We can see that the current price of Bitcoin (BTC) is sitting at $37,942.50 with a circulating supply of $18,737,550. This gives us a total market cap of $710,949,464,301. A whopping $710 billion, which seems like a lot, but keep in mind the price of Bitcoin (BTC) was significantly higher a month ago, and the market cap was well over $1 trillion dollars.

What Is Bitcoin Dominance

Bitcoin Dominance is the measured ratio between the market cap of Bitcoin (BTC) and the total market cap of all cryptos combined. Let’s take for example if the global crypto market cap was sitting at $100 billion, and the market cap of Bitcoin (BTC) itself was $50 billion, then the market would have a Bitcoin Dominance value of 50%. Obviously these numbers are nowhere near what the actual ones are, it is just simplified down to make the math easier.

The change in the Bitcoin Dominance rating, when compared also with the price of Bitcoin (BTC) itself, can be a strong indicator of how the alt-market is doing. Again, not a perfect measurement by any means, as there will always be alt-coins that are somehow able to break their patterns away from Bitcoin (BTC) and the other coins, especially when they have a useful utility and real world use case, those tend to help stabilize their own price action beyond just following the direction Bitcoin (BTC) is running.

Seeing Bitcoin Dominance

The easiest way I have found to get a nice clear chart of the Bitcoin Dominance is to go over to TradingView and pull up their BTC.D chart. As we can see here, starting in early January, the Bitcoin Dominance rating has been on a steady decline. This coupled with the fact that until recently the price of Bitcoin (BTC) itself was actually on an upswing, this would indicate that there was strong growth in the alt-coin market, even outperforming the money flowing into Bitcoin (BTC).

We can also see from here that starting from the crash back in May, that Bitcoin (BTC) has been taking back over it’s fair share of the market cap and pushing back up to be the more dominant crypto in the market. We are currently sitting at just under 50% dominance, so almost half the entire value stored in crypto currently, is stored in Bitcoin (BTC).

Bitcoin Dominance Trending

When you look at the Bitcoin Dominance level, and compare that with how the price of Bitcoin (BTC) itself is doing, we can see how the demand levels for alt-coins are doing. It doesn’t so much give you a lot of indicators of what Bitcoin (BTC) itself is going to do, as it’s a measurement of it versus other cryptos, but it can tell you if alt’s are moving quicker and may be a better place to move some money into.

If both the price of Bitcoin (BTC) and the dominance level are going up, this would mean that the alt-coins are going down, or at least not increasing at the same rate as Bitcoin (BTC). If the dominance rating is going up, but the price is going down, this would point to the price of alt-coins crashing down pretty hard.

If the dominance rating is doing down, but the price is going up, this would mean that the alt-coins are pumping up faster than Bitcoin (BTC). They are managing to take more of the market share away from Bitcoin (BTC), despite the fact that it is also making gains. Likewise if both the price and the dominance rating are going down, this would mean that the alts are managing to hold onto their market cap and push up higher, despite the fact that Bitcoin (BTC) is in a downturn. They are holding on and not getting drug down with it.

Conclusion

As you can see, the Bitcoin Dominance metric is not an overly hard one to utilize, but it can be a pretty powerful indicator of what is going on with the alt-coin market overall, and can help you decide if you should be putting money into Bitcoin (BTC) or looking for some tasty alts to throw your money into.

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Want some more content right now? Check out some of my previous posts:

Decentralized Autonomous Organizations
Decentralized Applications
Earning Crypto