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BITCOIN

A Guide to Bitcoin Dominance: Its Importance

and Is It Declining?
By Anush Jafer  Published April 25, 2023  April 25, 2023
 9 Min Read
Last updated: 2023/04/25 at 11:12 AM

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 The crypto ecosystem came to fruition with the emergence of Bitcoin in 2009. Since then, the space
SHARE has matured tremendously. Growing not only as a legitimate asset class but also in terms of market
capitalization and size. Over the last decade, a plethora of cryptocurrencies have appeared.

 These altcoins have accelerated the growth of the crypto market while impacting Bitcoin’s
dominance over the years. That said, Bitcoin remains the largest cryptocurrency in market cap and

 share, with a major influence on the entire crypto ecosystem. Therefore, Bitcoin’s dominance has
appeared as an indicator to spot trends in Bitcoin, the altcoin sector, and the market as a whole.





 Contents 
1 Understanding Bitcoin Dominance 2 Factors that Influence Bitcoin’s Dominance 

3 The Importance of Bitcoin Dominance  4 How to use Bitcoin Dominance to Spot Trends 

4.1 Identifying Alt-coin Seasons  Identifying Other Market Cycles through BTC

4.2
Dominance Patterns

4.3 Incorporating Technical Analysis to Evaluate BTC 5 Closing Thoughts and Considerations
Dominance

Bitcoin dominance refers to the ratio or percentage of Bitcoin’s market cap compared to the rest
of the cryptocurrency market. While Bitcoin’s dominance has declined, this ratio continues to
serve as a useful indicator to analyze market trends. 

Understanding Bitcoin Dominance

Before delving into Bitcoin’s dominance, it is useful to understand the term market cap. The market
cap simply refers to the total value invested in a given asset. A cryptocurrency’s market cap is
determined by multiplying the total number of tokens or coins in circulation by the current price. For
example, a total circulating supply of 19,355,143 BTC multiplied by the current price of each Bitcoin at
$27,256.05, equates to a market cap of $572 billion. 

Image via: CoinMarketCap

 Once Bitcoin’s market cap is determined, its dominance can be calculated by dividing it by the
current global crypto market cap. Therefore, if Bitcoin’s market cap stands at $534 billion and the
total crypto market is at 1.16 trillion, BTC’s dominance stands at 45.8%. 

Image via: CoinMarketCap

Factors that Influence Bitcoin’s Dominance 

Bitcoin dominance is a constantly changing metric. Bitcoin’s share in the crypto market has gone
from over 90% a decade ago to below 50% at the time of this writing. The decline in Bitcoin’s overall
dominance can be attributed to the rise of thousands of altcoins. The utility of altcoins has brought
different narratives to the space, such as decentralized financial (DeFi) services, gaming, and non-
fungible tokens. This has resulted in substantial interest and investment flowing into the altcoin
sector and thereby diluting Bitcoin’s dominance.
 Image via: CoinGecko

The degree of Bitcoin dominance is also influenced by Bitcoin’s price action and increased usage of
stablecoins. Furthermore, history has shown that the percentage of BTC dominance is greatly
influenced by market cycles. Bitcoin is a relatively stable asset compared to lower market-cap
altcoins. This has led investors to allocate funds to Bitcoin as a safe haven during bear markets and
conversely move into riskier altcoins during bullish phases. 

The Importance of Bitcoin Dominance 

Given that the Bitcoin dominance ratio moves in a cyclical fashion in tandem with trends and market
conditions, it has evolved into a leading indicator for crypto traders and investors. Platforms
like TradingView, CoinGecko, and CoinMarketCap provide a graphical illustration of BTC dominance
through charts.

The bitcoin dominance chart can be used as a helpful tool to understand where funds are being
allocated into the crypto ecosystem. The chart can be used as an indicator to determine market
sentiment in altcoins over Bitcoin and vice versa. Market analysts view a rise in BTC dominance as a
sign of investors moving from speculative altcoins to Bitcoin. Conversely, a decline in dominance is
viewed as people allocating their capital toward altcoin projects. This data can be used to reassess
one’s risk tolerance and investment thesis based on trends and sentiment. 

How to use Bitcoin Dominance to Spot Trends 

Bitcoin dominance can indicate the level of strength in the market, the possible onset of bull and
bear markets, and the potential dawning of an alt season. However, the question arises, how do we
identify such trends using the dominance chart? The following section outlines certain chart patterns
that traders have used in the past to adjust their investment approach.

Identifying Alt-coin Seasons 

Bitcoin’s price along with its dominance ratio can be analyzed concurrently to spot potential trends
in the altcoin sector. For example, if the price of Bitcoin is in an uptrend but the dominance is
declining, this is often seen as a potential bull market for altcoins. This was evident in the last crypto
bull market with the emergence of new trends like DeFi and NFTs shifting liquidity to Ethereum and
other layer-1 altcoins.

Identifying Other Market Cycles through BTC Dominance Patterns

BTC dominance can be used to shed light on where we are in a crypto market cycle. It must be noted
that these patterns are not ironclad indicators but must rather be used as a measure of strength in
the market. Historical observations of the following patterns indicate a correlation but that does not
guarantee the accurate performance of Bitcoin or any other crypto asset. 

“ 1.Bitcoin.
#BTC dominance is a measure that indicates what % of the total crypto market cap is comprised of

It signals where capital is being allocated, and is a measure of consumer sentiment.

 Dominance ⬆️ = Alts lose relative value to BTC
Dominance ⬇️ = Alts gain value to BTC pic.twitter.com/2yfOppWthP
— Miles Deutscher (@milesdeutscher) May 31, 2022
When Bitcoin’s price and dominance are both in an uptrend, this is usually indicative of a Bitcoin bull
run. Conversely, when both metrics are falling, this could signal overall weakness in the market and
the potential of a bear trend. Finally, when the price of Bitcoin is declining alongside a rising
dominance ratio, this usually indicates an altcoin bear market. 

Incorporating Technical Analysis to Evaluate BTC Dominance

Like any other chart, investors can incorporate technical analysis into the BTC dominance chart to
identify good trading opportunities. Investors can use trend lines to determine a potential reversal.
For example, Bitcoin dominance has been in a trading range between 39% and 49% for the past two
years.

Image via: TradingView

It is useful to view these levels as potential reversals or resistance zones respectively. Again, it is
important to manage risk here, since trend lines can be breached. 

Closing Thoughts and Considerations

While Bitcoin dominance is a useful indicator, it is important to highlight a disclaimer for people using
it as a tool to make investment decisions. Firstly, fixating on it as the only indicator is not the right
approach and one that could lead to losses. The crypto sector remains a risk-on asset due to its
nascency and volatility. Therefore, an appropriate mixture of different technical analysis tools in
conjunction with a fundamental analysis of each project is a more strategic approach.

Furthermore, the reliability and long-term viability of Bitcoin dominance has come into serious
question. Analysts view the rise of altcoins with substantial utility as a factor that will continue to
chip away at BTC’s dominance. There have even been whispers of a potential Ethereum flippening.
Since the dominance ratio also takes into account all new altcoins introduced into the market, there
is a high possibility of Bitcoin dominance reaching new lows in the future. This could render the index
ineffective.

However, on the flip side, with countries like El Salvador adopting Bitcoin as legal tender and the
potential for others to follow suit, there is no certainty that Bitcoin’s market share will continue to
decline. For now, BTC dominance remains a popular metric and, if used properly, can provide insights
into trends and the overall health of the crypto market.  

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