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What is the Bitcoin Dominance Index?

BingMag.com <b>What</b> is the <b>Bitcoin</b> <b>Dominance</b> Index?

Bitcoin Dominance Index shows the market value of Bitcoin compared to the rest of the cryptocurrency market. Some cryptocurrency investors and traders use the Bitcoin Dominance Index as a guide in managing their investment portfolios and trading strategies.


There are currently thousands of altcoins (any cryptocurrency after Bitcoin has emerged (called altcoins) exist, Bitcoin, or the original cryptocurrency, remains the largest digital asset by market capitalization. By observing the trajectory of Bitcoin's share of the total cryptocurrency market cap, traders have identified some recurring patterns in market conditions. Some have turned to using the Bitcoin Dominance Index as a guide for their trading behavior. In particular, the Bitcoin Dominance Index is believed to provide insight into the overall current market trend.

Bitcoin Dominance and Market Value

Simply put, market value is the total value of a Refers to a specific asset in circulation. The market value for Bitcoin is calculated by multiplying the current price by the number of Bitcoins that have been mined so far.

You can calculate Bitcoin Dominance with the following formula:

Bitcoin Dominance Index=Value Bitcoin market/Total market value of cryptocurrencies

Factors influencing the Bitcoin Dominance index

BingMag.com <b>What</b> is the <b>Bitcoin</b> <b>Dominance</b> Index?

Changing Trends

Before the rapid growth of altcoins, it was not out of the question that the Bitcoin Dominance Index would be above 90%. As altcoins have attracted more users and investors, Bitcoin has lost some of that attention to other more volatile assets and projects that boast new and exciting use cases. As the change in how value transfers worked, crypto projects evolved to do more. Unlike Bitcoin, many altcoins are used in a variety of sectors including gaming, art, and decentralized financial services beyond money transfer.

Depending on the current trend, there may be more interest and transaction in a certain type of There is a cryptocurrency project. For example, the rapid growth of NFTs may have caused a relative decline in Bitcoin's Dominance index in favor of NFT-related tokens.

Bitcoin has established itself as one of the "stable" cryptoassets over time. Traders' interest in the more dramatic price swings and associated profit opportunities offered by some newer altcoins could also affect the Bitcoin Dominance Index, leading to capital flows directed toward riskier assets. In this case, the projects these altcoins represent may not be as important as the potential profits.

Boom or Bust Market

Over the past several years, The popularity of stablecoins has grown dramatically, a trend that has put continued pressure on Bitcoin's dominance. In a bullish market or during times of extreme volatility, stablecoins are often used to protect cryptocurrency investors' capital amid falling prices. A stablecoin is an altcoin designed to hold value equal to the value of a more stable-priced asset such as fiat currencies or commodities. Cryptocurrency traders and investors often use stablecoins to keep their profits without having to convert their crypto into fiat currencies. When the circulating capital leaves the Bitcoin market and goes to stablecoins, the Bitcoin Dominance index may decrease.

On the contrary, this is possible in a booming market. When the market is bullish, traders may be tempted to shift value from stablecoins to more volatile assets such as Bitcoin, which provide more trading opportunities. However, bold traders may also choose riskier options and invest in altcoins that are even more volatile than Bitcoin, so market type has a huge impact on the Bitcoin Dominance Index.

Access via stablecoins

Compared to using fiat, stablecoins are a convenient way to access a diverse set of cryptocurrencies. This is because while fiat-to-crypto exchanges can be restrictive and only offer the more popular stablecoins and cryptocurrencies, crypto-to-crypto exchanges often provide a more comprehensive selection of cryptocurrencies that can be traded with selected stablecoins. So people who want to trade some specific cryptocurrencies may enter the market through stablecoins.

Of course, if a significant amount of new capital enters the market through stablecoins and not Bitcoin, the overall value of the cryptocurrency market will increase. increased and leads to an adjustment in the Bitcoin Dominance index.

Emergence of coins New

Sometimes new coins that enter the market can quickly gain popularity and lead to a decline in Bitcoin's dominance. Remember that Bitcoin is "fighting" with every other cryptocurrency on the market, so the emergence of several popular altcoins at once can affect it. However, it is possible that these altcoins will lose popularity once the hype subsides. If this happens and capital moves from these altcoins to Bitcoin or out of the cryptocurrency market in general, Bitcoin Dominance may increase again.

Using the Bitcoin Dominance Indicator in Trading

BingMag.com <b>What</b> is the <b>Bitcoin</b> <b>Dominance</b> Index?

Wyckoff method

Wyckoff method Originating in the early 1930s, it is a set of principles designed for traders and investors in traditional financial markets. Some of these principles, such as the rule of cause and effect, can be applied when looking for profit opportunities using the Bitcoin Dominance Index. They use the timing of transactions. According to Wyckoff's principle, trading behavior consists of four phases: accumulation, price increase, distribution, price decrease. Identifying where and when capital flows can be important to some traders who rely on market timing for informed trading decisions.

Different traders and investors often use this approach to pick stronger trends. Below are several scenarios where Wykoff's method is in action.

Using the Bitcoin Dominance Index to Detect Altcoin Season

As the number of altcoins increases in Market, it is not surprising that the Bitcoin Dominance index is adjusting. In recent years, some altcoins have gained more popularity and led to the total market value of all altcoins slightly surpassing the market value of Bitcoin. Times when altcoins consistently outperform Bitcoin are called "altcoin seasons" or "alt seasons." According to Wykoff's method, such capital movement from Bitcoin to altcoins is periodic.

Since altcoins usually perform better during the altcoin season, the Dominance index of Bitcoin may be low in this phase of the market cycle. So people who trade both Bitcoin and altcoins may want to keep an eye on the Bitcoin Dominance Index to adjust their portfolio accordingly.

Using the Bitcoin Dominance Index with Price Current Bitcoin

Some people monitor the price of Bitcoin along with the Bitcoin Dominance Index for better trading decisions.

Although nothing is certain, here are some We see the possible consequences that different combinations of Bitcoin price and Bitcoin Dominance Index may indicate:

  • When the price and Bitcoin Dominance Index are rising, it may be a signal for a booming market (bull market). be Bitcoin.
  • When the price of Bitcoin is increasing but the Dominance index of Bitcoin is decreasing, it may be a signal of a booming market (bull market) of altcoins.
  • When the price of Bitcoin in It is decreasing, but the Dominance index of Bitcoin is increasing, it may be a signal of a bear market in Altcoin.
  • When the price and Dominance index of Bitcoin are decreasing, it may be The general bear market trend is for the entire cryptocurrency market. While these two factors are not definitive indicators of a booming or non-booming market, historical observations indicate that these factors are related to market boom.


Dominance is a tool to help reveal how market cycles change. Some traders use it to set their trading strategies, while others use it to manage their investment portfolios. Remember that this indicator does not guarantee the performance of Bitcoin or any other cryptocurrency, but serves as a guide for traders in planning their trading approach.
  • What is the fundamental value of Bitcoin?

Source: Binance Academy

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