To better understand the market specifications cryptocurrency, you need to understand BTC Dominance, an index that is always accompanied by price, market capitalization. So BTC What is Dominance, how important is this indicator?
Standing in the perspective of investors when they are new to the market or have been participating for a long time in the market cryptocurrency are certainly no strangers to the Dominance indicator. What you can easily see when you go to any major website related to market research and statistics crypto as Coinmarketcap.com nice Bitcoin.com, it's not hard to see this indicator. So the indicator BTC What is Dominance, let's T-REX Find out in the article below.
What is BTC Dominance?
BTC Dominance is translated into Vietnamese as domination or domination. BTC Dominance is a term in the field of cryptocurrencies that is understood as a percentage of dominance Bitcoin, in other words, the percentage of capitalization that Bitcoin account for the total market capitalization.
BTC Dominance Rate calculated based on market capitalization. Therefore, if the market capitalization of bitcoin is higher than altcoin otherwise, the higher the BTC Dominance rate will be.
Example how to calculate BTC Dominance:
From the picture above, you can easily calculate BTC Dominance by the formula:
BTC Dominance = Bitcoin Market Cap / Total Market Cap
BTC Dominance = $723,643,406.312 / $1,600,152,493,779
BTC Dominance ~ 45.3%
This formula is also used to calculate any dong crypto any on the market.
Meaning of BTC Dominance
Bitcoin is the first cryptocurrency as well as the original currency of the entire crypto market. Holding a fixed amount of BTC to convert into other coins is something any player does. The Bitcoin price is very volatile and usually retains its value for a relatively long time. This is also the reason why BTC Dominance is increasing while the market is in a long-term decline. When the index BTC Dominance Rises, a rally is believed to be imminent. New sources pour into Bitcoin, users will tend to sell altcoin to buy bitcoin, predicting a new rally is coming.
Have 4 situations that often occur in the market are:
- The price of Bitcoin increases, the whole market goes up. This case is a beautiful development and tends to increase the fastest because the market is now regaining confidence, and there is an inflow of money from outside causing the total capitalization to increase.
- The price of Bitcoin fell, pulling the market down. This scenario is the exact opposite of the first scenario, which is also the most negative outcome.
- The price of Bitcoin is flat or falling, but the price of altcoins is up. This will start a new bull run for altcoins, and BTC is regaining its strength.
- The price of Bitcoin increases but the price of altcoins decreases. This is the time when there is an influx of money from altcoins to bitcoin, or maybe outside money pouring into Bitcoin.
Therefore, you must always pay attention to the indicator BTC Dominance to be able to grasp the trend of the market, make the most effective choice.
Analysis of BTC Dominance trend and what it means for BTC price
Take a look at the historical chart of BTC Dominance through the following timelines to review the key milestones of BTC Dominance:
- Before 2017, there were not many strong altcoins, BTC Dominance was always approximately 90%. Proving that the market at this moment only trusts and focuses entirely on Bitcoin.
- In mid-2017, ICO activity exploded. The rate of BTC Dominance sometimes goes as low as 37.85%. At this point, the dominance stat of Ethereum up to 30,67% because of buying demand ETH to participate in ICO increased very strongly.
- In December 2017, BTC Dominance recovered to 67.5%, reaching the highest level in the last 6 months of 2017 and early 2018. Because then Bitcoin broke out, increased continuously, peaking to $20,000.
- In mid-January 2018, BTC Dominance dropped to an all-time low, when Bitcoin dominance was only 32.8%. Because then all altcoins were pumped very strongly, there were Altcoins that increased in price more than 100 times compared to 2017, so investors were attracted by huge profits that sold Bitcoin to buy altcoins.
- In April 2018, BTC dominance rose to a 2018 high of 45,72%, thanks to a bull run from $6,600 to nearly $10,000. After a long-term decline, Bitcoin's price increase again brings a lot of confidence to investors. So they rushed to buy, causing this index to quickly increase.
- In July 2018, BTC Dominance reached its highest level in 2018 at 47.3%. At that time, a lot of good news about Bitcoin went viral especially with the hope of getting it SEC approved to open the fund ETF.
- In March 2019, the BTC Dominance index was at 50.3%. There are many experts who believe that due to the price of altcoins, such as ETH decrease, causing people to turn to investing in BTC to ensure the safety of capital.
How does BTC Dominance affect altcoins and the market?
When a new coin appears in the market, people's mentality always wants to make money and get rich quick. This is absolutely a truth that anyone can think of.
Around the second half of 2017, BTC dominance returned and almost doubled.
But from there comes a trend that you need to watch out for: When everyone has made a profit from turning 1000$ into 20,000$ within half a year, they will have a mentality of wanting to earn more. So they decided to use Bitcoin to invest in Altcoins.
Many people have found a way to take advantage of BTC profits to invest in a low-cap altcoin, expecting the altcoin to explode in price. This is really true when they put their trust in the right coin.
Of course that happened in late 2017 and early 2018, when BTC Dom once again plummeted as Bitcoin holders sold it in exchange for another coin. Bitcoin price fell back from 20,000$ to 6,500$.
In contrast, capital inflows from Bitcoin have made other altcoins grow strongly.
What to do when BTC Dominance increases?
The reasons for the increase in BTC Dominance parameters have been mentioned above:
- Bitcoin price surged, causing traders to sell altcoins to buy Bitcoin and wait to make a profit.
- Bitcoin price fell, but altcoins fell even more, so to avoid heavy losses, many traders choose to sell bitcoin to keep their capital safe.
- Buying Altcoins is good because altcoin prices are very cheap at the moment, but be patient because today's low may be tomorrow's high.
Once BTC Dominance increases, a large amount of capital that altcoins hold will be transferred to Bitcoin. Therefore, altcoins are unlikely to rise sharply at the moment, but once they drop, they will drop very sharply.
Limitations of BTC Dominance Index
Any indicator has its pros and cons. Bitcoin Dominance is no exception to that rule. Dominance index problems start with market capitalization, a commonly used metric in the overall market. Market capitalization is calculated as the number of coins in circulation multiplied by its market price. In the market, the market price can be manipulated. Especially altcoins with very large trading ranges. Continuing on the issue of supply, every year there are many ICOs taking place. The actual number of coins issued and circulating in the market are two completely separate issues.
According to Messari data, in 2020 alone, there will be an additional 20% Ripple (XRP) is greeted. Followed by Compound (COMP) 40%, Stellar (XLM) 17.4%, ZCash (ZEC) 15,6%, Polkadot (DOT) 13.8% and Cosmos (ATOM) 10%. This is the statistics of major altcoins, it can be seen that determining between the number of additional issuance and circulation is really extremely difficult.
The Future of BTC Dominance and Trading Strategies
Currently, Bitcoin dominance can be quite fiercely contested by the development of Bitcoin DeFi. The projects DeFi has the potential to change the financial paradigm globally. Besides, Bitcoin's rival is Ethereum in progress ETH 2.0 allows to extend interoperability between systems and blockchain difference. As the value of these DeFi applications increases, the value of blockchain Ethereum means increase. Given that fact, Bitcoin is still unable to participate in this spectacular growth.
By combining BTC price trend analysis and BTC Dominance, we will get some trading strategies on a case-by-case basis, which you can see in detail in the image below.
BTC Dominance is one of the most useful tools for users in the crypto market. To make the best use to promote the advantages and minimize the disadvantages of BTC Dominance (BTCD), you need to combine with other indicators before making a decision.