Bitcoin is the world’s first and most prominent cryptocurrency when it comes to market capitalization and trading volume. These factors are quite important considering that all coins are traded against BTC and their dominance rate can really serve as a valuable indicator when trading every other cryptocurrency together.

This post provides detailed information on cryptocurrency trading using the BTC dominance indicator and reading the BTC dominance indicator chart in general.

What is the Bitcoin dominance rate chart?

The bitcoin dominance rate is calculated by comparing the market cap of bitcoin to the cap of the entire cryptocurrency market. The higher Bitcoin’s market cap, the more dominant Bitcoin is, and we get the answer to the question: what percentage of the cryptocurrency market does Bitcoin make up?

Bitcoin Dominance Rate Formula:

Bitcoin Dominance = Bitcoin Market Cap / Total Cryptocurrency Market Cap.

The BTC dominance chart on TradingView shows this indicator in a percentage format, for example 40% or 60%.

Furthermore, users can also view the actual dominance of BTC by calculating the ratio of BTC dominance versus PoW coins aiming to become a form of money.

The logic of Bitcoin’s Real Dominance Index is that many altcoins, like stablecoins, are not designed to compete with Bitcoin and hence the metric could paint a more realistic long-term view of BTC dominance.

This indicator even gives users the option to exclude ETH as many debate whether it is a currency or a utility token?

How Does Bitcoin Dominance Affect Altcoins?

BTC dominance can directly impact altcoins as it shows how much the BTC market is trading volume compared to altcoin trading volume.

As Bitcoin dominance increases, traders generally recommend holding more BTC than altcoins and vice versa.

While it is wrong to say that Bitcoin dominance is an accurate representation of a bear market or a bull market, there are correlations between these definitions. For example, a bull market can result in a lower BTC dominance rate as money often flows into altcoins during this time.

In contrast, bear markets often see higher BTC dominance as traders pull money out of altcoins and into Bitcoin as it is a more reliable asset.

Some enthusiasts argue that a lower bitcoin dominance rate is a good thing as it means the market is expanding and more money is flowing through all kinds of projects instead of just bitcoin. However, it is also important to note that the total crypto market cap also counts the value of pre-mines and forks, meaning that the number of altcoins can be artificially inflated.

In addition, it should also be considered that Bitcoin’s dominance rate could decrease even if the price of the asset increases. This comes as money flows into crypto markets, including bitcoin, even though more money flows into altcoins than into the world’s largest cryptocurrency.

While bitcoin’s rate of dominance may color the crypto market in some ways on the surface, there are several factors that need to be considered for an informed view.

Sometimes dominance drops due to a short-term altcoin boom or due to cash flows from the overall market. It’s best to do more research before deciding to invest.

How to trade based on bitcoin dominance rate?

There are many factors to consider when attempting to trade based on Bitcoin dominance. First, understand that if even one altcoin is of particular interest, Bitcoin’s dominance may wane. This interest in a single altcoin does not mean every altcoin will go up. The market can take some time to correct itself.

Also, consider the purpose of some popular altcoins and whether that purpose is having a lasting impact on the altcoin market. For example, we see a stablecoin with a significantly increasing volume for the time being.

However, users invest in the aforementioned stablecoins to easily transfer those funds to Bitcoin as stablecoins are an easy way to bring money into the crypto industry.

Because of this activity, BTC dominance can quickly dip and bounce back, negatively impacting short-term transactions. Another factor that can cause Bitcoin’s dominance to decrease or increase unpredictably in the short-term is the fear of missing out (FOMO).

New coins are constantly coming onto the cryptocurrency market. Some of these new altcoins entering the market created an outright hype that resulted in hundreds of thousands of dollars pouring into altcoins and disproportionately lowering bitcoin’s dominance rate.

However, many new altcoin projects often lose the hype or even end up as scams, leading users to withdraw as quickly as they invested. In this case, BTC dominance could return to its original position.

Also consider the extremes of the ratio. For example, the rate used to be over 90% before altcoins hit the market. However, enthusiasts are noting that BTC dominance is unexpectedly hitting that number again due to the popularity of altcoins in today’s market. However, it cannot be said with certainty that if countries follow El Salvador in adopting BTC as legal tender, its dominance could increase again.

In fact, bitcoin dominance is more likely to hit a new low rather than a new high as altcoin projects grow in popularity around the world.

Therefore, traders should take note if bitcoin dominance tends to make all-time highs as this is likely to mark resistance. Conversely, users should keep an eye on the new bottom metric and the reaction of the altcoin market.

What happens if bitcoin falls in price?

A drop in Bitcoin price means a drop in dominance, with users moving funds from BTC to other altcoins, but the price drop may also have little to do with overall dominance. If bitcoin dominance wanes, users can certainly expect altcoins to rise in price and be traded accordingly.

Bitcoin dominance rate chart.

Overall, Bitcoin could fall in price as users pull away from all cryptocurrencies, resulting in a lower overall crypto market cap. In this case, despite traders’ predictions of a possible bear market, Bitcoin’s dominance remains at a certain level.

This example is a necessary reminder that traders shouldn’t be using bitcoin dominance rate as the only tool, but rather one of many to check before making a trade.

Impact of the Bitcoin crash on the crypto market

Aside from the dominance rate, bitcoin’s significant price declines in the past have often resulted in a full market crash, although there are some exceptions. The correlation between bitcoin and the market crash is simply that bitcoin is the world’s first cryptocurrency and all cryptos trade against it.

For example, if a country considers banning bitcoin and the resulting price falls significantly, traders and speculators may also lose confidence in altcoins and retreat from these alternative investments.

However, a bitcoin crash does not always mean a market crash. There are many instances where Bitcoin falls significantly in price while ETH remains more stable. It is important to remember that different assets serve different purposes and the downtrend of one asset may not correlate with the downtrend of another.

In fact, Bitcoin’s crash will have less and less of an impact on the overall market in the coming years as altcoins enter the mainstream. Bitcoin dominance is important right now as it is still the most popular cryptocurrency in the world. As other coins start removing Bitcoin’s, the dominance rate will go lower and lower.

Join Bitcoin Magazine Telegram to follow news and comment on this article: https://t.me/coincunews

home home

According to Cointelegraph

Follow the Youtube Channel | Subscribe to the Telegram channel | Follow the Facebook page