By market valuation and volume, Bitcoin (BTC) is the world’s most prominent cryptocurrency. These considerations are rather important when taking into account the fact that every cryptocurrency is traded against Bitcoin and that the dominance of Bitcoin may serve as a useful signal when trading any cryptocurrency.

The percentage of the total value of the cryptocurrency market held in Bitcoin is referred to as its “dominance.” It is a crucial indicator that helps cryptocurrency market participants understand Bitcoin’s position vis-à-vis other cryptocurrencies.

If the dominance of BTC grows, the value of altcoins as a whole will decrease. Conversely, alternate cryptocurrencies will increase in value if Bitcoin’s dominance decreases. Other names for this metric include the Bitcoin dominance ratio and the Bitcoin dominance index.

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Lets get back to the article. In this article we will explain the concept of Bitcoin dominance, as well as its inner workings and its importance in the crypto world. So lets dig in!

This article will discover how to trade cryptocurrency using bitcoin dominance in 2022.

The connection between Bitcoin dominance and the total market capitalization

If you understand how the two are related to one another, you will better understand how to use the connection as a indicator while trading.

The overall worth of an asset on the market is what economists refer to as the market capitalization of that asset.

The current price of bitcoin is multiplied by the total quantity of BTC that has been mined up to this point to arrive at the bitcoin market cap.

The dominance of bitcoin may be calculated using the following formula:

Bitcoin domination = Bitcoin market capitalization/Total cryptocurrency market capitalization

How to trade crypto using bitcoin dominance

Wyckoff Method

The Wyckoff Method is a set of guiding principles developed in the early 1930s specifically for traders and investors operating in conventional financial markets. When looking for possibilities to make money with Bitcoin domination, you may use some of these ideas, such as the law of cause and effect.

Many traders and investors use the Wyckoff Method to determine the direction of a market trend, the possibility of a trend reversal, and time transactions. According to Wyckoff, the four stages of accumulation, markup, distribution, and markdown, make up trading behaviour. Markdown is the last stage.

For those traders who base their judgments on the timing of the market, determining where and when money moves may be a significant part of making educated trading decisions.

Diversified traders and investors often use this method to identify the stronger trend. Several examples of situations where the Wyckoff Method may be useful are shown below.

Using Bitcoin’s market dominance to determine whether to buy altcoins

It should be no surprise that bitcoin’s market dominance is eroding due to the proliferation of other cryptocurrencies on the market. The value of the entire market capitalization of all altcoins momentarily surpassed that of bitcoin a few years ago due to the popularity of a few alternative cryptocurrencies (altcoins).

“Altcoin season” or “alt season” refers to times when the performance of alternative cryptocurrencies consistently outpaces that of bitcoin. According to the principles of the Wyckoff Method, a transfer of money from bitcoin to altcoins is periodic.

Bitcoin’s dominance may decrease during this market cycle because alternative cryptocurrencies (altcoins) tend to perform better throughout altcoin seasons.

Consequently, investors that trade both bitcoin and other cryptocurrencies may want to watch bitcoin’s market dominance to adapt their portfolios appropriately.

Using BTC dominance in conjunction with the current price of bitcoin

To assist them in making trading choices, some individuals keep an eye on the price of bitcoin and its market share.

Different permutations of BTC price and dominance may be able to provide light on several possible outcomes, even though these hypotheses cannot be shown to be true with absolute certainty.

A prospective bull market for bitcoin may indicate itself when both the price of BTC and its market domination are rising.

When the price of Bitcoin (BTC) goes up, but the dominance of Bitcoin (BTC) goes down, this may be an indication of an impending bull market in other cryptocurrencies.

If the price of Bitcoin is going down while Bitcoin’s market share is going up, this might be an indication of an impending bear market in altcoins.

When both the price of Bitcoin and its market domination go down, it may indicate an impending bear trend for the cryptocurrency industry as a whole.

Even though none of these elements guarantees a bull or bear market, there is a link between them, according to historical records.

Using Bitcoin Dominance for trading decisions

After you have determined the sort of pattern that Bitcoin dominance is through, you can then construct your trading flow by following this guide:

• It will be more favourable to sell bitcoins when the BTC dominance ratio is at a record high and Bitcoin is on an upswing.

• When the Bitcoin dominance ratio reaches a record high while at the same time Bitcoin prices are falling, this is a sign that investors should purchase altcoins.

• It is a sign that it is time to sell altcoins when the BTC dominance ratio is at a record low while at the same time Bitcoin is on an upward trend.

• Purchasing bitcoins will be more profitable when the BTC dominance ratio is at a record low and Bitcoin is moving in a downward trend.

Therefore, the BTC Dominance ratio may be useful for identifying potential in Bitcoin and other cryptocurrencies and seizing some attractive trading chances.

Closing Thoughts: Is the Bitcoin Dominance a Reliable Indicator?

Because there isn’t a single metric that can accurately predict how the whole cryptocurrency market will move, fixating on a single metric might result in financial loss or inconsistent performance. Bitcoin Dominance is without a shadow of a doubt,  a useful indicator, but, in the grand scheme of the crypto market, it is only one of many parameters.

There is a very strong likelihood that Bitcoin’s dominance will continue to drop and reach new lows due to the rising popularity of alternative cryptocurrencies (altcoins) among the general public. If such a circumstance arises, the BTC dominance index will no longer be a useful metric for assessing the trends in the cryptocurrency market.