BTC Market Cap Dominance Analysis
What is the Bitcoin Dominance Index?
Bitcoin Dominance Index is the percentage of Bitcoin's market capitalization compared to the total cryptocurrency market cap. This dominance is expressed as a tool to measure Bitcoin's market power compared to other cryptocurrencies.
How is the index calculated?
Simple formula to calculate Bitcoin dominance:
BTC Dominance = (Bitcoin Market Cap ÷ Total Market Cap of All Cryptocurrencies) × 100
Example:
• If the market value of Bitcoin = $500 billion.
• Total market = $1 trillion.
• Dominance = (500 ÷ 1000) × 100 = 50%.
What does high or low dominance mean?
1. Bitcoin Dominance Rise:
• Indicates that the market is leaning towards Bitcoin.
• Increased demand for Bitcoin compared to alternative currencies (Altcoins).
• Often occurs during times of caution or general market decline when investors choose more stable assets.
2. Declining Bitcoin Dominance:
• Indicates the flow of money towards alternative currencies.
• It shows investors' appetite for projects and assets with higher returns but more risk.
• Often associated with “Altcoin Season” periods.
How can the indicator be used to determine trends?
1. Bitcoin's Uptrend:
• If dominance increases and the price of Bitcoin is also rising, this indicates that the market is moving towards Bitcoin, which is a positive indicator of overall market strength.
• Example: Dominance increases from 40% to 50% as Bitcoin price rises from $20,000 to $25,000.
2. The upward trend of alternative currencies:
• If Bitcoin's dominance declines as altcoin prices rise, it means the market is experiencing a strong altcoin bull run.
• Example: Dominance drops from 50% to 40% as coins like Ethereum or Solana rise.
3. Downward trend of the market:
• If dominance rises but the price of Bitcoin itself falls, it may indicate a complete withdrawal of liquidity from the market, as Bitcoin is considered more stable compared to altcoins.
The importance of the dominance index and its impact on the market
1. Risk Management:
• Rising dominance shows that the market is shifting towards safe assets.
• Lower dominance means the market is more bullish and possibly riskier.
2. Choosing the timing:
• Investors can monitor dominance to determine when to focus on Bitcoin or switch to altcoins.
3. Understanding Market Liquidity:
• The indicator reflects the flow of money within the market, which helps in analyzing upcoming movements.
The simplest example to illustrate the idea
Imagine the market as a large bowl containing several types of fruit.
• Bitcoin is like an apple (bigger and more stable).
• Alternative currencies represent the rest of the fruit (oranges, grapes…).
If 60% of the bowl is filled with apples, it means people prefer apples (Bitcoin).
But if oranges (altcoins) start filling the bowl and apples' share drops to 40%, it means people are becoming more interested in oranges.
Can we rely on the indicator alone?
No, it should be used with other tools such as:
• Candlestick chart analysis (Price Action).
• Other indicators such as RSI and MACD.
• Follow up on news and events that affect the market.
a summary:
• Rising dominance: Market is leaning towards Bitcoin (altcoins are stable or weak).
• Declining dominance: investors are turning to altcoins.
• Using the indicator: helps you choose the right assets and prepare for upcoming market movements.
