Dominance

November 21, 2023 - Around 2 mins mins to read

Understanding Dominance

The concept of Dominance can be understood through the Bitcoin Dominance Index, which is provided by CoinMarketCap. This index tracks the total market capitalization of Bitcoin in comparison to the overall market cap of all digital assets.

By focusing on Bitcoin’s Dominance, this metric highlights the foundational role that Bitcoin plays in the cryptocurrency market. It also emphasizes the significantly higher value of Bitcoin when compared to other digital currencies.

Traders find value in this index as it helps them gauge the sentiment within the crypto market. While the market cap of Bitcoin is an important indicator of investor sentiment, changes in Bitcoin’s price also reflect changes in sentiment across the broader crypto market. Therefore, insights from the Bitcoin Dominance Index can be relevant to altcoins as well.

When consulting the Bitcoin Dominance Index, investors should take certain factors into consideration. One important factor is the use of market cap as a metric. This is because there is a substantial amount of dormant Bitcoin, which refers to coins that remain unused or lost in wallets or are forgotten by their holders. This issue becomes more significant during significant price spikes, as new and inexperienced investors may purchase coins and subsequently forget about their holdings. The estimated levels of dormant Bitcoin, which could be as high as 30% of all mined coins, make market cap a potentially unreliable metric.

However, despite the potential issues with market cap, Bitcoin’s market capitalization still represents the immense size and growing importance of the world’s largest cryptocurrency in relation to other cryptocurrencies. There are numerous projects that aim to challenge Bitcoin’s dominance, with some, like Ethereum, offering more advanced blockchain applications beyond the creation of value-storing coins.