A major topic of discussion within the crypto community is how Bitcoin seems to dominate the crypto markets. Bitcoin dominance is used to express the massive market share that represents Bitcoin’s daily exchange volume. This volume is a percentage of the overall crypto market capitalization, including altcoins.
As the first and most well-known cryptocurrency, bitcoin has traditionally been viewed as the dominant player in the market. However, as the cryptocurrency landscape has evolved, so too has the role of bitcoin. We will discuss the cycle involved in Bitcoin dominance as well as the relationship that exists between BTC and alts.
What is Bitcoin Dominance?
As previously discussed, BTC dominance is used to express the massive market share that represents Bitcoin’s daily exchange volume. This volume is a percentage of the overall crypto market capitalization, including altcoins.
The value of Bitcoin dominance is obtained simply dividing Bitcoin’s market capitalization (more commonly known as market cap) by the total crypto market cap. On a highly diminished scale of $1 million total crypto market cap, let’s assume Bitcoin’s market cap is $600k. Mathematically speaking, Bitcoin’s crypto market share is 60%. Having the lion’s share of the market is what’s referred to as dominance.
Bitcoin’s dominance has historically been a useful metric for understanding the relative strength of bitcoin compared to other cryptocurrencies. As interests in Bitcoin increases, historically, it’s market share also increases, essentially increasing its dominance. The opposite of this scenario is also true. Whereas investor confidence in Bitcoin drops, causing a plunge in Bitcoin dominance. At this time, altcoins usually have more investor confidence and gain a little more market share.
The Bitcoin [BTC] Dominance Cycle
The BTC Dominance Cycle refers to the cyclical nature of bitcoin’s dominance over the cryptocurrency market. Historically, bitcoin dominance has followed a predictable pattern. Periods of market uncertainty tend to increase the dominance of Bitcoin. And, when the market stabilizes further, Bitcoin’s market dominance rises.
During periods of market uncertainty, investors tend to flock to the safety of bitcoin. This is because bitcoin is seen as a more stable and established cryptocurrency than many of the altcoins in the market. As a result, bitcoin market share tends to increase during times of market volatility.
Conversely, during periods of market stability, investors tend to become more interested in altcoins. This is because altcoins are often viewed as higher-risk, higher-reward investments than bitcoin. As a result, the dominance of Bitcoin tends to decrease during times of market stability.
What Roles Do Altcoins Play in the BTC Dominance Cycle?
Altcoins play an important role in the BTC Dominance Cycle. As mentioned earlier, altcoins tend to perform better than bitcoin during periods of market stability. This is because altcoins are often viewed as more speculative investments than bitcoin. As a result, investors tend to invest more heavily in altcoins during periods of market stability.
However, altcoins are also more volatile than bitcoin. This means that they tend to experience larger price swings than bitcoin. As a result, altcoins can be riskier investments than bitcoin.
Altcoins can also have a significant impact on btc dominance. When altcoins perform well, investors may become less interested in bitcoin. This can cause bitcoin dominance to decrease. Conversely, when altcoins perform poorly, investors may flock back to bitcoin, causing the dominance of bitcoin to increase.
The Relationship Between BTC Dominance and Altseason
Every once in a while, Bitcoin loses steam, allowing altcoins to outperform it. This period in time is the altseason. It features large gains in the prices of altcoins.
Altseasons tend to occur during periods of market stability when investors are more willing to take on risk.Altseasons can have a significant impact on the dominance. Interest historically drops in Bitcoin during alt seasons. Btc dominance reduces by a few percent, allowing popular altcoins to gain market share for some time. This can cause btc dominance to decrease.
However, altseasons don’t last long enough. As investors become more interested in altcoins, the prices of altcoins tend to increase rapidly. When the period becomes a bit protracted, investors usually become cautious and begin to move their wealth into Bitcoin again. As a result, periods of increased bitcoin dominance follow every alt season.
Conclusion
The BTC Dominance Cycle describes the cyclical nature of bitcoin’s dominance over the cryptocurrency market. Altcoins play an important role in the BTC Dominance Cycle, as they tend to perform better than bitcoin during periods of market stability. The volatility of cryptocurrencies is a huge concern, especially in altcoins.
Bitcoin tends to be more stable. Altseasons can have a significant impact on bitcoin dominance, but they usually don’t last. Understanding this cycle and the relationship between bitcoin and altcoins is important for investors looking to navigate the cryptocurrency market.
