Bitcoin is, and always has been, the #1 cryptocurrency by market capitalization. Accounting for a very large portion of crypto’s total value, Bitcoin’s price action has great influence on the rest of the market.  

As crypto markets fluctuate, so too does Bitcoin’s share of the overall crypto market cap. Keeping an eye on this metric gives traders and investors an idea of Bitcoin’s value in relation to the altcoin market, and can help inform investment strategies.

Definition of Bitcoin dominance

Bitcoin dominance represents the ratio between the market capitalization of Bitcoin and the market capitalization of all other cryptocurrencies. In other words, it’s a measurement of Bitcoin’s share of the overall crypto market.

To calculate Bitcoin dominance, simply divide the market cap of all other cryptocurrencies by the market cap of Bitcoin. For example, if Bitcoin’s market cap was $100 billion, and the total crypto market cap was $200 billion, Bitcoin dominance would be at 50%.

Historical view of Bitcoin dominance

Being the first cryptocurrency ever invented, Bitcoin was once responsible for 99% of the crypto market.

Years later, Bitcoin represented as much as 95% of the crypto market, which was still very small. In 2016, for example, the market cap of crypto was only about $7 billion.

Starting in 2017, however, thanks to the ICO boom, the indicator began being used amongst different trading communities. But it wasn’t until the even larger altcoin bull market of 2021 that Bitcoin dominance began being tracked by platforms like TradingView and CoinMarketCap, making the metric a popular way to gain insight into crypto markets.

In 2018, amongst the rising popularity of altcoins like ETH, XRP, SOL, ADA, and many others, Bitcoin dominance fell as low as 37%. The following year, as altcoins crashed, BTC dominance rose all the way back to 71%.

As of October 2023, Bitcoin dominance stands at around 53%.

What role Bitcoin dominance plays in the crypto market

When Bitcoin dominance rises, this indicates that people are either buying Bitcoin, selling altcoins, or both. Because of Bitcoin’s perceived status as the apex safe-haven crypto, rising BTC dominance could indicate a risk-off sentiment.

For this reason, BTC dominance is used as input for the crypto fear and greed index, a market sentiment indicator. The aim of the index is to gauge whether assets are overvalued or undervalued as a result of investor exuberance or pessimism.

Bitcoin’s dominance can be used by traders as a buy or sell signal when taking into account other factors. By looking at the rise or fall of BTC dominance along with Bitcoin’s price trend, investors can be more confident in determining whether they should allocate more to Bitcoin or more to altcoins, or perhaps be short or long crypto in general.

Factors impacting Bitcoin dominance

Factors that impact Bitcoin dominance exist both inside the crypto ecosystem and within the global economic and financial system at large.

Some macroeconomic factors that might impact BTC dominance include things like:

• Regulatory developments: If regulators make statements or propose legislation that favors BTC over altcoins, this could convince investors to buy Bitcoin, increasing dominance.
• Market sentiment: Fear in traditional financial markets can impact Bitcoin dominance to the upside, as investors sell altcoins they perceive to be riskier.
• Monetary policy: Bitcoin tends to benefit from looser monetary policy like quantitative easing, which adds liquidity to the financial system.
• Safe-haven seeking: Certainty-shattering events like the banking collapses of early 2023 can sometimes increase Bitcoin’s price and its dominance, as investors move capital outside the traditional financial system.

Some crypto-specific factors that might impact Bitcoin dominance include:

Altcoin inventions: if new altcoins are launching and seeing rapid adoption rates, this could result in declining BTC dominance.  

Technological advancements: if Bitcoin undergoes a successful technological update, this could lead to increased investor confidence and rising BTC dominance.

Trader speculation: Bitcoin dominance could rise or fall in accordance with the appetite for altcoins. If dominance rises along with the price of Bitcoin, it tends to be bearish for altcoins, while falling dominance with an increasing BTC price tends to be bullish for altcoins.

Bitcoin dominance looking forward

Bitcoin dominance has become a key statistical measurement of the overall state of the crypto market. Because of Bitcoin’s safe haven status and role as the preeminent crypto asset, measuring its market cap in proportion to the rest of crypto provides valuable insight into market sentiment and investor behavior.

BTC dominance can be influenced by many factors inside and outside of crypto, and has become an important metric since its inception in 2017.

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• Source: https://bitpay.com/blog/bitcoin-dominance/