Bitcoin Dominance and Its Impact on Altcoins
Bitcoin dominance refers to the percentage that measures Bitcoin’s share of the entire cryptocurrency market capitalization. It’s an important metric for understanding the overall health of the cryptocurrency market3.
Bitcoin Dominance Increasing
When Bitcoin dominance is on an uptrend, it’s generally a good time to be in Bitcoin. This is because an increase in Bitcoin dominance often leads to a decrease in the altcoin market. For example, Bitcoin surged toward $54,000 on Wednesday, the highest level in almost five months. The cryptocurrency is up about 8% over the past 24 hours, compared with a 3% rise in ether over the same period. The bitcoin dominance ratio, which measures BTC’s market capitalization relative to the total crypto market capitalization, increased to about 44%, from a low of about 40% last month.
Bitcoin Dominance Decreasing
Conversely, when Bitcoin dominance is on a downtrend, it’s often a good time to invest in altcoins. This period is often referred to as "Altcoin Season". During the sell-off last month, investors may have rotated out of altcoins and into bitcoin.
However, it’s important to note that the cryptocurrency market is highly volatile and these trends may not always hold true. Therefore, it’s crucial to use Bitcoin dominance as one of many tools for making informed investment decisions.
Altcoin Investing
Investors can jump ships and invest into altcoins when they see Bitcoin dominance decreasing compared to alts. The rise in the dominance ratio reflects bitcoin’s recent outperformance versus alternative cryptocurrencies (altcoins) – a trend that some analysts expect will continue this quarter.
The Bottom Line
Bitcoin dominance is an important metric for understanding the overall health of the cryptocurrency market3. It’s not a 100% perfect metric to use, but it helps to analyze the macro-market since many people like to refer to it - so it becomes a self-fulfilling prophecy. We can observe the total capital (money) flowing between alts and BTC with this chart and make some conclusions about the market’s current state.