I know many of you use a lot of indicators and charts to help you trade. I have even discussed BTC and ETH paired charts that can help you get an edge and it would be incomplete if I didnt mention BTC.D or Bitcoin Dominance.
What is Bitcoin Dominance?
Bitcoin Dominance is the percentage of the total crypto market cap that is attributed to Bitcoin. Simply, it measures Bitcoin’s market share relative to all other cryptos combined. The calculation for BTC Dominance is straightforward: it is the ratio of Bitcoin’s market capitalization to the total market capitalization of all cryptocurrencies, multiplied by 100.
For example, if Bitcoin’s market cap is $1 trillion and the total market cap of all other crypto is $2 trillion, BTC Dominance would be 50%. This means that Bitcoin represents half of the entire crypto market’s value. It shows you how interested the market is in Bitcoin, if you trade bitcoin you want dom to be high but if you only go for alts then pray for dominance to keep falling.
Why is Bitcoin Dominance Important?
BTC Dominance is an essential metric for several reasons:
1. Market Sentiment Indicator: BTC Dom provides a snapshot of market sentiment. A rising BTC Dom often indicates that investors are favoring Bitcoin over altcoins, possibly due to a preference for the perceived safety of Bitcoin during uncertain times. On the other hand a decline in BTC Dom means that investors are seeking higher returns in altcoins.
2. Insight into Market Cycles: BTC Dom fluctuates with market cycles. During bull markets, altcoins often outperform Bitcoin, leading to a decrease in BTC Dom. However, during bear markets, investors tend to flock back to Bitcoin, which is seen as a safer asset, causing BTC Dom to rise. Additionally, BtcD usually rises near the start of a bull market too.
How to Use Bitcoin Dominance in Trading
BTC Dominance is more than just a metric; it can also be a strategic tool for optimizing portfolios and positioning:
1. Portfolio Diversification: Monitoring BTC Dominance can help traders decide when to diversify into altcoins or consolidate their holdings into Bitcoin. For instance, if BTC Dominance is rising, it might indicate that the market is favoring Bitcoin, suggesting a potential shift away from riskier altcoins i.e. Alts shall BLEED!! Conversely, a declining BTC Dominance could signal an altcoin season, where diversifying into high-performing altcoins might be profitable i.e. Alt Season!!.
2. Timing Market Entries and Exits: Use BTC Dominance to time market entries and exits. For example, if BTC Dominance is increasing and market sentiment is cautious, it might be a good time to focus on Bitcoin or reduce exposure to altcoins. On the other hand, if BTC Dominance is falling, indicating a strong performance from altcoins, it might be a signal to increase exposure to these assets.
Conclusion
Go to trading view or even the chart on Binance for Bitcoin Dom and co-relate its movements with general altcoin price action. You can see that whatever I mentioned above makes sense and its based on facts. My positioning this cycle for long term exposure is increasing as according to my Technical Analysis, I feel that the top is in will will soon be in for Bitcoin Dominance in the next few months meaning when it makes its journey down, some choice alts will flourish!!
For those interested in learning more about Bitcoin Dominance and its implications, Binance Academy offers in-depth resources that can further enhance your understanding and trading approach.
Explore more: https://academy.binance.com/en/glossary/bitcoin-dominance.