BTC Dominance: What Is It and How to Use It in the Cryptocurrency Market

Currently, Bitcoin (BTC) holds the top spot in terms of market capitalization in the global crypto market, indicating its influence. It is believed that analyzing BTC dominance can provide insights into current market trends.

What exactly is Bitcoin dominance?

BTC dominance is the ratio of Bitcoin's market capitalization to the total capitalization of all other available crypto assets. It is an important metric used for analyzing the crypto market. By relying on it, you can:

• Determine the level of significance of a particular cryptocurrency in the market.
• Develop an investment strategy and decide whether it's worth buying a specific cryptocurrency right now.
• Adjust your crypto portfolio.
• Calculate the market share of a specific cryptocurrency.

The easiest way to track Bitcoin dominance is to  use specialized charts provided by analytical platforms. Based on these charts, crypto investors and traders devise their trading strategies.

What influences BTC Dominance?

The BTC dominance metric is not constant and is influenced by several factors, such as:

• Changing trends

In the early days of cryptocurrency popularity, Bitcoin held about 90% of the entire market. Before the emergence of Ethereum in 2015 and the "altcoin boom", tracking trends was straightforward.

As blockchain technologies developed and alternative digital currencies appeared, Bitcoin started losing its almost absolute dominance in the crypto market. Users began paying more attention to more volatile and functional currencies.

Bitcoin pioneered decentralized fund transfers, but alternative cryptocurrencies went further, enriching the crypto world with new possibilities (e.g., the development of DeFi, NFTs, DAOs, etc.).

By 2020, Bitcoin established itself as the "most stable asset among the unstable". Ethereum (ETH) took second place, followed by Tether (USDT). The price fluctuations of BTC became acceptable compared to the high volatility of newcomers.

• Bull and bear markets

The invention of stablecoins led to a sharp decline in Bitcoin's popularity. During bear markets, users turned to stable digital assets like USDT to protect their funds from price declines

The trend of transferring funds from the Bitcoin market to the stablecoin market during a downtrend indicates a decline in Bitcoin dominance. In bull markets, the opposite happens: money moves from stablecoins to more volatile assets, such as Bitcoin. During these periods, there is an opportunity to make greater profits in trading, and it is recommended to use major crypto assets

Introducing new coins

The entry of a new crypto project into the market is often a significant event. Especially if market giants, influencers or well-known sponsors show interest in the project during the Testnet stages.

Even if a new project lacks stability for a long time on the market, there is a high probability of attracting a large user base during its launch, and this is often facilitated by airdrops.

The simultaneous introduction of several new currencies into the market can significantly affect Bitcoin's dominance. Over time, when the hype around new entrants subsides, BTC will likely regain its positions

Where is Bitcoin dominance used?

Traders and investors develop their strategies based on existing methods and charts, which are commonly applied in traditional financial markets. Some of these models are easily adaptable to cryptocurrencies, incorporating indicators such as Bitcoin dominance and others to create a more detailed analytical pictur

The Wyckoff Method + Bitcoin Dominance

Richard Wyckoff's method has been known to traders since the 1930s and is widely used in traditional markets. In cryptocurrency analysis, this method provides structure by representing trading movements as a series of four phases: accumulation (accumulation of funds), impulse (uptrend), distribution, and reduction (trend)

Defining altcoin seasons + Bitcoin dominance

In the cryptocurrency market, there are periods when the market capitalization of altcoins exceeds that of Bitcoin, known as the altcoin season. During these times, Bitcoin's dominance wanes, prompting cryptocurrency traders to actively adjust their portfolios while monitoring such trends

Track Bitcoin Price + BTC Dominance

Cryptocurrency traders and investors are closely monitoring Bitcoin price movements and dominance to draw conclusions and make predictions. Some patterns that may appear include

D The rising price and dominance of Bitcoin indicates an uptrend in the Bitcoin market.

A rise in Bitcoin price and a decline in dominance may indicate an imminent uptrend in the altcoin market.

A decline in Bitcoin price and a rise in dominance can predict a downward trend in the altcoin market.

Bitcoin's price decline and dominance likely indicates an imminent downtrend for the entire cryptocurrency market.

Thus, Bitcoin dominance is a crucial indicator for cryptocurrency analysts, helping them track changes in market cycles, adjust cryptocurrency strategies, and manage cryptocurrency portfolios

Conclusion

Bitcoin dominance plays a pivotal role in the analysis and decision-making processes of traders and investors in the cryptocurrency market. Used alongside established methods such as the Wyckoff Method, it provides a structured framework for understanding market movements. Identifying altcoin seasons, characterized by shifts in dominance, allows for proactive portfolio adjustments

Additionally, tracking Bitcoin's price movements along with it dominance allows for accurate market predictions. As a result, Bitcoin's dominance is emerging as a vital barometer, making it easier to monitor market cycles, formulate effective crypto strategies, and dynamically managecryptocurrency portfolios in response to evolving trends and patterns.