The ratio of the market capitalization of Bitcoin to the overall market capitalization of all cryptocurrencies is called Bitcoin Dominance or BTC dominance. It is used as a metric by crypto traders to analyze the market. Although BTC dominance does not reflect Bitcoin’s real value, it surely helps traders in positioning themselves in the market. Overall, BTC dominance is an important metric.
What is BTC Dominance?
The plain and simple answer to that question will be the ratio of BTC’s market cap to the worldwide market cap of all cryptocurrencies. It is basically a percentage calculated on the basis of the current market cap of Bitcoin divided by the global crypto market cap. If I say that the BTC dominance is 46%, it means that a 46% share of the crypto market cap is in Bitcoin.
The current market cap of BTC is $548.61 billion, and the global crypto market cap is $1.23 Trillion. If we divide $548.61 billion by $1.23 trillion, we can see that the BTC dominance at the time of writing this article is 44.60%.
There is a formula for calculating Bitcoin market cap too. We calculate the market cap of any cryptocurrency with this formula: Market Cap = Price X Circulating Supply. The market capitalization of Bitcoin is the multiplication of the number of Bitcoins in circulation and the price per Bitcoin. The current price of one Bitcoin is $28,344. And the current circulating supply of Bitcoins (no. of Bitcoins in existence) is $19.3 million (with a maximum supply of 21 million). Therefore, the market cap of BTC while I am writing this is approximately $547 billion.
Importance of BTC Dominance in The Cryptocurrency Market
Since Bitcoin dominates the majority of the overall crypto market cap, all cryptocurrencies react to its price movement. So, to get a pulse of the market, the crypto traders use the BTC dominance. This metric helps them to manage risks and spot probable trends. The BTC dominance is generally juxtaposed with other data sets to determine trading opportunities and trends in the crypto market. And since the shape and direction that BTC’s price takes impact the altcoins, according to most people, Bitcoin dominance helps in understanding the trends in the altcoin market too.
Change in Bitcoin Dominance
The two factors that determine the BTC dominance ratio are the Bitcoin market cap and the overall crypto market cap. Since the amount of Bitcoins in circulation will not increase dramatically in a short period of time, the price of Bitcoin has a bigger influence on its market capitalization than the no. of Bitcoins in circulation. If we look at history, Bitcoins market dominance is directly proportional to its price hike over time. But this dominance might not be perpetual owing to new advancements and innovations in altcoins.
We can see that BTC dominance has been declining steadily for some time now. It is because of the growing number of altcoins and diversification of the crypto markets. So, the overall altcoin market’s performance triggers Bitcoin dominance over time. And traders are especially interested in determining these changes and fluctuations because they are great indicators of the current state of the market. These indicators help traders decide how they would position their trades.
BTC Dominance Over Time
Bitcoin was launched in 2009. And back then, 99% of the crypto market cap was Bitcoin’s. There were very few other cryptocurrencies, and hence the crypto landscape was significantly smaller. In four years, the BTC dominance fell by 4%. And with Ethereum’s introduction in 2015, Bitcoin’s dominance was around 9-%.
Bitcoin Dominance in 2017
In February 2017, the BTC dominance was 96%, and at the beginning of 2018, it was as low as 37%. This plummet in BTC dominance was brought about by the early success of Ethereum, buttressed by an initial coin offering (ICO) craze and the introduction of new altcoins and tokens. The altcoins saw an ever-increasing enthusiasm. At that time, the market witnessed an increase in negative sentiment and a decrease in confidence. This led to the 2018 cryptocurrency crash. The bear market lasted for almost a year.
Bitcoin Dominance in 2019-2020
In 2019, the crypto market saw better days. The price of BTC was also recovering in tandem with its dominance. Before Bitcoin halved in 2020, BTC dominance increased to somewhere between 60% to 70%. In May 2020, the BTC dominance was at a high level because of the halving. But it dropped from 65% to 55% because of the DeFi summer when many DeFi tokens came into existence and gained traction.
Bitcoin Dominance in 2021
In 2021, Bitcoin’s price started rising again. The market cap spiked 700% since March 2020. This crossed the previous all-time high significantly. The interest of institutional clients and celebrities in crypto was growing back then. The rise of non-fungible tokens (NFTs) and DeFi was also happening, and retail clients were trying out altcoins. Although the confidence in the cryptocurrency market was growing, it wasn’t the case for Bitcoin. Bitcoin kept losing its market share to altcoins, and its dominance hasn’t crossed the 45% mark ever since (till the time of writing this article).
BTC dominance is still a very important metric for crypto traders. With 44% dominance, Bitcoin still has the heftiest dominance over the cryptocurrency market. And so, it is a big deciding factor in the crypto market. When BTC dominance increases, altcoins lose market share. When BTC’s dominance grows while its price is stable or when BTC’s dominance decreases with its decreasing price, the altcoin prices remain somewhat stable.