If you've traded in the cryptocurrency world, you've probably heard about one metric that many traders are watching: bitcoin dominance.
So, what exactly is this "bitcoin dominance" and why is it important?
What is Bitcoin Dominance?
The ratio of bitcoin's market capitalization to the rest of the cryptocurrency market is known as bitcoin dominance.
For example, if the total market capitalization of cryptocurrencies is $1 trillion and bitcoin has a market capitalization of $600 million, this means that bitcoin has a 60% dominance.
At this time of writing, according to coinmarketcap.com, the whole cryptocurrency market capitalization is 2.12 trillion dollars and bitcoin is around 844 billion dollars. Bitcoin dominance is 40%.
Bitcoin Dominance for the past years
In the early years, bitcoin's dominance was much closer than 100 percent. Way back then, ERC 20 token doesn't exist and Vitalik Buterin's ethereum is just starting, stablecoins such as tether usdt weren't a thing.
In 2017, this has started to changed when the first so-called "alt season" begin.
February of year 2017, bitcoin's dominance is at 85.4 percent but in the span of just four months, bitcoin's dominance began to fall dramatically as inital coin offerings becomes incredibly popular.
June 2017, bitcoin's dominance falls to 40 percent with liquidity moving to ERC 20 tokens. During this event, ethereum supporters began to talk about the so-called "the flippening". Flippening means that ethereum's market cap will flips bitcoin's market cap. But it didn't happened even after now.
Bitcoin's price crashed in 2017 after its first bull run and by January of 2018, bitcoin's dominance hits the all-time-low of 32.8 percent.
Bitcoin's dominance returned to 70 percent in September 2019.
So why is it significant?
The most critical aspect of Bitcoin Dominance is that it will assist you in determining if altcoins are in a downtrend or uptrend in comparison to BTC.
When BTC Dominance rises, alts lose importance in comparison to BTC.
When BTC dominance falls, alts gain importance in comparison to BTC.
When Bitcoin Dominance is up, you'll want to be in Bitcoin (or cash), and when it's down, you'll want to be in alts (including ETH, big caps, mid caps, low caps, and so on).
Final Words
While Bitcoin dominance is a fascinating statistic to examine, it is important to remember that it does not represent the currency's true value (especially because of forked and premined coins, which impact the total market cap in a very unnatural way). It's also worth noting that market capitalization does not imply a cash inflow. It's just a calculation based on the current selling price and circulating availability.
So you think that bearish market today is becuase of BTCs dominance is below 40%?