Bitcoin Dominance (BTCD) is a percentage metric that reflects the ratio of Bitcoin to the total value in the cryptocurrency market. Its dominance over other cryptocurrencies shows Bitcoin's influence and dominance over the market.
Bitcoin Dominance is expressed as a percentage and is calculated as follows: Bitcoin Dominance (%) = (Bitcoin Market Cap / Total Market Cap of All Cryptocurrencies) * 100
For example: If the market capitalization of Bitcoin is $600 billion and the total market capitalization of cryptocurrencies is $1.5 trillion, the Bitcoin Dominance rate is 40%.
The importance of Bitcoin Dominance in the cryptocurrency market can be evaluated in several different ways. This ratio shows the strength and dominance of Bitcoin over other cryptocurrencies, and is therefore indicative of market trends. A high Bitcoin Dominance indicates that Bitcoin is the strongest cryptocurrency in the market.
Bitcoin Dominance is one of the key metrics that shows whether the market is in a bull or bear cycle. This makes it easier for traders to understand the cycles and develop their strategies accordingly. In bull cycles, altcoins generally outperform Bitcoin and Bitcoin's Dominance falls. In bear cycles, on the other hand, Bitcoin's dominance increases due to the fact that Bitcoin is heavily favored.
The beginning of Bitcoin Dominance dates back to 2009, when Bitcoin was launched. In the early years, Bitcoin Dominance was 100%, as Bitcoin was the only cryptocurrency in the market. Over time, this ratio started to decrease as new cryptocurrencies emerged.
In 2013, with the launch of altcoins such as Litecoin and Ripple, Bitcoin Dominance fell below 90%. Bitcoin Dominance experienced a serious decline for the first time while the number and popularity of altcoins increased during this period.
2017 saw one of the most dramatic declines in Bitcoin Dominance. With the emergence of Ethereum and other platforms, ICOs (Initial Coin Offering) experienced a huge boom. Bitcoin Dominance fell from 85% to around 40% during this period.
In 2018, while the cryptocurrency market witnessed a general decline, the Bitcoin Dominance ratio started to rise again. The rapid decline in the value of many altcoins paved the way for investors to turn to Bitcoin again, and the Bitcoin Dominance rate rose to 70%.
In 2021, as decentralized finance (DeFi) and non-fungible token (NFT) projects grew in popularity, the Bitcoin Dominance ratio started to decline again. Many DeFi and NFT projects were developed on platforms such as Ethereum and Binance Smart Chain. During the period, the Bitcoin Dominance rate dropped below 60%.
The Bitcoin Dominance ratio is a critical metric for understanding the dynamics of the cryptocurrency market. This is because historical data shows that the Bitcoin Dominance ratio changes in relation to market cycles. High Bitcoin Dominance ratios are often seen during periods of high uncertainty or downtrends, while low ratios are more common in bull markets where altcoins are popular.
On the other hand, academic research and market analysis show that Bitcoin Dominance provides clues about the health of the cryptocurrency market and investor behavior. For example, a study on Cryptography and Financial Technologies examined the effects of Bitcoin Dominance on market volatility and investment strategies (Smith & Kumar, 2020). In addition, market analysis companies and news outlets regularly share Bitcoin Dominance to guide investors.
The Bitcoin Dominance ratio reflects the overall sentiment and investor confidence in the cryptocurrency market. A high Bitcoin Dominance ratio indicates that investor confidence in Bitcoin is strong and that the market is largely driven by Bitcoin. This occurs when there is uncertainty or a downtrend in the market, as investors turn to Bitcoin as a safer haven.
There is a direct relationship between the Bitcoin Dominance rate and the altcoin market. When the Bitcoin Dominance ratio rises, the market capitalization of altcoins generally rises or remains stable, which means that investors are shifting their capital to Bitcoin and the performance of altcoins is weaker than Bitcoin. When Bitcoin Dominance falls, investors flock to altcoins in anticipation of higher returns and market diversification increases.
A rise in Bitcoin Dominance usually indicates that the market is more defensive and cautious, with investors taking less risk. During this period, the price of Bitcoin is generally more stable or bullish, while the prices of altcoins are under pressure. On the other hand, a decrease in the Bitcoin Dominance ratio means that the market prefers to take more risks and altcoins receive more attention. During this period, altcoins see large price spikes and the market becomes more volatile.
In 2017, Bitcoin rose from around $1,000 to $20,000. During this period, Bitcoin's market capitalization increased dramatically and interest in the cryptocurrency market skyrocketed. With the rise, Bitcoin became more accepted by mainstream media and investors.
In 2018, the price of Bitcoin fell dramatically, dropping to around $3,000. Bitcoin's market capitalization also declined sharply during this period. Investor confidence was shaken and there was a general downtrend in the market.
In 2020 and 2021, however, institutional investments and increased demand led to a major rally. Bitcoin's price reached over $60,000 and its market capitalization reached trillion-dollar levels. Large companies such as Tesla and MicroStrategy started investing in Bitcoin, which supported the price increase.
Many altcoin projects have attracted a lot of attention from investors over time. The popularity of altcoins was associated with their innovative solutions and community support. Ethereum (ETH), currently considered the most popular cryptocurrency after Bitcoin, has made a huge impact on the market as a platform for developing smart contracts and decentralized applications (dApps). The rapid growth of its market capitalization and use cases has made Ethereum the cornerstone of DeFi projects.
Binance Coin (the cryptocurrency issued by the Binance exchange) has greatly increased its value and popularity with the increase of projects and DeFi applications on the Binance Smart Chain (BSC).
Solana (SOL) was developed as a blockchain platform that offers low-cost transactions at high transaction speed. In 2021, it experienced a huge surge in popularity, and over time, it became one of the most preferred platforms for DeFi projects and NFT marketplaces.
The cryptocurrency market is constantly evolving and growing with the emergence of new projects and currencies. Let’s examine Cardano, Polkadot and Chainlink that are just 3 of these projects.
Cardano (ADA) is a blockchain platform based on scientific research. In 2020 and 2021, it experienced significant growth and its market capitalization increased rapidly. Cardano stands out for its smart contracts and sustainable blockchain solutions.
Polkadot (DOT) is a robust project that enables different blockchains to work together. Launched in 2020, Polkadot quickly gained popularity and has massive community support.
Chainlink (LINK) is an Oracle network that integrates non-blockchain data into smart contracts. Growing in 2020 and 2021, Chainlink continues to play a critical role in DeFi projects.
Leading figures in the cryptocurrency market have various views on the future of Bitcoin dominance. Anthony Pompliano, founder of Morgan Creek Digital, argues that Bitcoin will remain the market leader in the long run and that the dominance rate will remain at high levels. Pompliano believes that Bitcoin will continue to be seen as a safe haven due to its limited supply.
PlanB, the creator of the Stock-to-Flow (S2F) model, predicts that Bitcoin's value will continue to increase and its dominance rate will remain high. PlanB believes that Bitcoin's deflationary nature will attract investors in the long run.
Ethereum founder Vitalik Buterin predicts that Bitcoin Dominance will decrease over time with the increase in altcoins and especially DeFi projects.
Michael Saylor, CEO of MicroStrategy, argues that Bitcoin will continue to be recognized as digital gold and that Bitcoin Dominance will rise in the long run. According to Saylor, the adoption of Bitcoin by institutional investors will also increase the dominance rate.
According to market trends, the possible scenarios of Bitcoin Dominance could take place in 3 different ways in the future.
Bitcoin Dominance plays an important role in shaping traders' strategies. For example, in 2017, when Bitcoin Dominance dropped from 85% to 37%, investors turned to altcoins. In late 2020 and early 2021, when Bitcoin Dominance rose back above 70%, investors made big gains by investing in Bitcoin.
Using Bitcoin Dominance data for portfolio diversification and risk management is a common strategy. When Bitcoin Dominance rises above 60%, investors typically allocate the majority of their portfolios to Bitcoin. However, when dominance falls below 40%, risk can be spread by investing in altcoins. In 2021, when Bitcoin Dominance fell below 40%, altcoins such as ETH, BNB and ADA experienced increases.
The Bitcoin Dominance rate influences trading decisions. Historically, when Bitcoin Dominance dropped to 33% in 2018, investors turned to altcoins and made big gains. However, when Bitcoin Dominance rose to 60% in the first quarter of 2021, investors returned to Bitcoin and the Bitcoin price reached all-time highs.
The Bitcoin Dominance ratio is an important indicator that reflects investor sentiment. When the dominance ratio is high, it indicates that investors view Bitcoin as a safe haven and prefer to avoid risk. For example, in late 2020, amid the uncertainty created by the COVID-19 pandemic, Bitcoin Dominance rose above 70%.
Investors move to riskier assets and prefer to invest in altcoins When dominance declines. Dominance declines usually occur during bull market periods. For example, in the first half of 2021, Bitcoin Dominance fell below 40% as DeFi projects became popular.
Market manipulation can affect the Bitcoin Dominance ratio by shaping investor psychology. Large investors or whales can manipulate the dominance ratio and therefore market sentiment by trading large amounts of Bitcoin. A popular example is when Elon Musk's tweets about cryptocurrencies in 2021 caused sudden fluctuations in the Bitcoin Dominance ratio.
The Bitcoin Dominance ratio is an important metric used to successfully predict market movements. When the dominance ratio is high, upward movements in the Bitcoin price can be expected. For instance, when the dominance ratio rose above 70% in late 2020, the Bitcoin price skyrocketed and reached all-time highs. Likewise, when the dominance ratio falls, altcoins' performance improves. When dominance dropped below 40% in early 2021, the prices of Ethereum and other altcoins increased significantly.
Bitcoin Dominance is the ratio between Bitcoin's market capitalization and the total market capitalization of the entire cryptocurrency market. The BTC dominance ratio is very important as it is an indicator that reflects Bitcoin's dominance in the market and the confidence level of investors.
Bitcoin dominance can be calculated by dividing the BTC market capitalization by the total market capitalization of other cryptocurrencies.
When BTC Dominance falls, the market capitalization and popularity of altcoins usually increases. Investors show more interest in altcoins and take more risks during these periods.
When the market capitalization of altcoins increases, there is more diversity and competition in the market and BTC Dominance usually decreases.
You can track Bitcoin Dominance data on popular platforms and exchange sites such as CoinMarketCap and CoinGecko.
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