As you might expect, the term “Bitcoin dominance” refers how dominant Bitcoin is in comparison to every other crypto asset. This measurement compares the market capitalization of the number-one crypto asset with the combined market capitalization of every other crypto asset. Also, Bitcoin dominance allows us to understand the sentiment around Bitcoin and other cryptocurrencies. However, this measurement can tell us far more than just how well Bitcoin is performing. Historically, Bitcoin dominance has been instrumental in predicting trend changes and painting a picture of the current psychology of the crypto market. So, if you’re one of the many investors wondering, “what is Bitcoin dominance?” – read on to learn more!

In this “what is Bitcoin Dominance?” article, we’re going to deep-dive into the concept of Bitcoin dominance. We’ll explore what the concept means, how it works, and why so many investors and traders rely on it. Also, we’ll discuss the implications of Bitcoin dominance, how you can use it to trade, and how make the most of it. Plus, we’ll explore technical analysis (TA) and the different trading indicators you can use with it.

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Technical Analysis (TA)

Before we address the question of “What is Bitcoin Dominance?”, let’s first explore how it can be applied. Technical analysis (TA) is a discipline or technique that enables traders and investors to analyze historical statistics and trends. It helps them identify buying and selling opportunities in a given market. Not only is TA used in cryptocurrency trading, but it is an essential tool for trading stocks, commodities, derivatives, and fiat currencies. 

On the other hand, fundamental analysis (FA) allows investors to evaluate the potential future price movements of an asset. This is achieved by looking at things like sales, media representations, and other macroeconomic factors. However, TA involves analyzing price movements and trading volumes to establish how supply and demand affects prices.

Technical analysis displays trends and trading opportunities on trading charts. Traders can identify trends using technical indicators like moving averages, support, and resistance. Some trading indicators are widely accepted as bullish. This means that when they occur, there’s a strong chance of positive price action. Equally, some indicators are historically bearish and often occur before negative price movements. As such, we can use trading indicators to determine the probability of an asset going up or down in price.

In crypto, we usually apply TA to a trading pair on a visual trading chart application like TradingView. For example, many traders look at the price of Bitcoin (BTC) relative to a dollar-pegged stablecoin like Tether (USDT). In this instance, we would pull up a BTC/USDT trading chart for our technical analysis. From here, we can draw trend lines or highlight key support and resistance levels. We can also use TA to determine where money flows in the crypto markets using Bitcoin’s dominance.

Trading Indicators

Whether you’re using TA for stocks, derivatives, or crypto, indicators play an essential role in helping us implement our strategies. Trading indicators consist of various patterns and signals that allow us to forecast price movements. Many trading indicators establish market trends, while others help us to determine the likelihood of a trend continuation.  However, all of them combine hard data to help traders make the right moves.

If you’ve watched videos or read any articles about TA, you’ve likely come across terms that refer to trading indicators. This includes trendlines, moving averages (MA), oscillators, support and resistance, relative strength index (RSI), Fibonacci retracement, Bollinger bands, and moving average convergence/divergence (MACD). Traders use various combinations of these indicators in TA to build robust trading strategies.

Also, crypto traders can use on-chain metrics and indicators in conjunction with TA to gain a better perspective of how capital flows throughout the Web3 landscape. In addition, traders can consider Bitcoin dominance.

What is Bitcoin Dominance?

So, what is Bitcoin dominance? The term “Bitcoin dominance” refers to the ratio of the market capitalization of Bitcoin compared to every other cryptocurrency. Bitcoin dominance shows the shifting sentiment in the crypto markets. Investors often use Bitcoin dominance as a tool for adjusting portfolios and trading strategies accordingly. When Bitcoin dominance is high, it shows that the market at large favors the number-one cryptocurrency over every other crypto asset. Likewise, when Bitcoin dominance is low, it shows that the market favors altcoins.

Blog What is Bitcoin Dominance?

Crypto traders and investors often draw several correlations between Bitcoin dominance and certain market dynamics. This is because Bitcoin dominance provides a broad perspective of overall sentiment in the crypto market. Market capitalization is the total number of coins or tokens in circulation multiplied by the price of the asset. When the market capitalization of Bitcoin rises against the rest of the crypto market, many traders acknowledge this as an indication of a trend. Likewise, when the market capitalization of the rest of the cryptocurrencies increases against Bitcoin, traders understand this to be the opposite trend.

In the early days of crypto, Bitcoin dominance was often above 90%. However, the increasing number of altcoins available today has enabled alternative assets to gain a larger share of the market. Generally speaking, altcoins are more volatile than Bitcoin and experience more drastic price swings. Also, altcoins serve a variety of use cases beyond value transfer. As such, interest in altcoins tends to point towards a marketwide inclination to speculate on assets that are more volatile than Bitcoin. Below, we explore some of the underlying reasons for the market reacting in this way.

How Do I Read Bitcoin Dominance?

Now that we have addressed the question of “what is Bitcoin dominance?”, let’s take a closer look at how investors interpret it. As the number one cryptocurrency, Bitcoin is extremely influential in determining overall market sentiment in the crypto space. However, compared to some of the more speculative assets available, Bitcoin is considered to be relatively stable in price. So, when traders and investors become bored of Bitcoin’s sideways price movement, they often look elsewhere in the market to increase their gains in the short term.

When Bitcoin dominance is high, altcoins tend to suffer. However, when altcoin dominance increases, it often signals a broader interest in Web3 technologies like smart contracts, NFTs, decentralized finance (DeFi), and crypto gaming. This often occurs in tandem with hype cycles around particular technologies. For example, the rise of non-fungible tokens (NFTs) and the metaverse has taken the spotlight off Bitcoin in recent months. Nonetheless, marketwide downturns often impact lesser-known cryptocurrencies more severely than Bitcoin. Accordingly, many of these assets are seen as higher risk than Bitcoin.

When crypto traders forecast the top of a bull market, they often take profits into stablecoins. Stablecoins are cryptocurrencies that are price-pegged to fiat currencies like the US Dollar. Also, stablecoins enable traders to take profits from cryptocurrency portfolios without converting their assets back into fiat currencies. Furthermore, several prominent stablecoin projects have emerged in recent years. However, this appears to cause continuous pressure on Bitcoin dominance when lots of investors take profits simultaneously. Plus, the more successful stablecoins there are in the market, the larger the impact they have on Bitcoin dominance.

How Do I Use Bitcoin Dominance for Trading Crypto?

Cryptocurrency traders often use Bitcoin dominance as a sign that altcoin season is on the horizon. During a bear market or times of marketwide uncertainty, Bitcoin tends to be the most dominant cryptocurrency of them all. However, when Bitcoin dominance falls, it often correlates with a surge in demand for altcoins. When this occurs, many investors see an opportunity to speculate on riskier assets.

Due to the low market capitalization and volatility of many altcoins, the potential returns for these assets often surpass those made from Bitcoin trading. When these cycles occur, we generally see the dominance of Bitcoin go down while altcoin dominance goes up. Furthermore, an altcoin season is largely indicative of a positive market sentiment whereby investors become less fearful and more greedy. Altcoin rallies can signify that the market is “throwing caution to the wind” in comparison to more frugal and conservative periods. On the other hand, a surge in Bitcoin dominance after a long period of bearishness in the crypto markets can suggest that we’re nearing the beginning of a trend reversal.

Bitcoin dominance can be an effective trading tool. Understanding how to read market sentiment is essential for anyone looking to turn a profit in crypto. If you want to remove emotions from your trades, see the Technical Analysis 101 course at Moralis Academy. In this course, we teach students how to read chart patterns and trading indicators. Plus, we teach you how to create your own trading strategies using probability so that you don’t have to rely on gut feeling, and hearsay. Take your trading game to the next level with Moralis Academy!

What is Bitcoin Dominance? Key Takeaways

Although a change in Bitcoin dominance can often suggest a shift in market sentiment, it is far from an exact science. In fact, one can only draw correlations and probabilities from changes in bitcoin dominance and the subsequent changes that occur in market psychology. Nonetheless, many investors and traders acknowledge that changes in Bitcoin’s price and dominance in comparison to altcoins have a tendency to correlate with an increase in the likelihood of certain events playing out in the markets. This is because many of these correlations have played out repeatedly in the past. For example, when Bitcoin dominance goes up substantially in line with the price of the asset, it can suggest that a Bitcoin bull run may be on the horizon.

On the other hand, when Bitcoin increases in price but falls in dominance, it often suggests that an altcoin rally is nearby. Furthermore, some see a rise in Bitcoin dominance coupled with a falling Bitcoin price as an indication of an impending altcoin bear cycle. However, when both the price and dominance of bitcoin fall in tandem, some analysts predict that the broader crypto market could soon be in for a bearish period.

What is Bitcoin Dominance? Summary

Bitcoin dominance enables us to determine the overall market sentiment toward Bitcoin and how it compares to that of every other crypto asset. Also, Bitcoin dominance helps us to identify trend changes in the crypto market and understand how other investors feel about Bitcoin and altcoins. Additionally, this metric allows us to see where the money is flowing in the crypto space and adjust our investment strategies accordingly.

Bitcoin dominance alone is not enough to say with any certainty how Bitcoin or altcoins will perform. However, it does help traders to understand the probability of certain events by enabling them to make historical comparisons. Moreover, the Bitcoin dominance metric is one of the go-to tools for investors and analysts as it plays such a crucial role in understanding market psychology.

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