What is the relationship between Bitcoin Dominance and Market Cap?

August 12, 2022

Reading Time: 4 minutes

The blockchain market is dominated by Bitcoin, even though it operates like a mystery bubble. However, over the last few years, Bitcoin has opened the way for many other altcoins and platforms in the blockchain sector.

However, because of the precarious nature of market emotions, Bitcoin, like other cryptocurrencies, has had to contend with waves of bullish and bearish trends and has had its ups and downs.

When it comes to trading, one crucial measure to keep an eye on is Bitcoin’s Dominance. Many seasoned traders pay a lot of attention to it since they believe it to be an important indicator. It is a useful instrument that may give you an idea of how well the cryptocurrency market is doing and where it is heading.

Learning about the correlation between Bitcoin Dominance and Market Capitalization is a great starting point for your cryptocurrency trading journey. However, we will recommend not to start trading before learning all the fundamentals first. In case you can’t find the time or find understanding these indicators too challenging than fear not, we are here to offer help.

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Lets get back to the article. In this article we will explain the correlation between Bitcoin dominance and Market Capitalization. So lets dig in!

This article teaches you about bitcoin dominance and market capitalization and their relationship.

What is Bitcoin Dominance?

BTC dominance at any particular time indicates who has a stronger market grip. This can be used to analyse if investing in bitcoins is worthwhile or if investing in alternative cryptocurrencies offers greater prospective returns. The Bitcoin dominance ratio is a measure that may be used to assess which cryptocurrency, among Bitcoin and other cryptocurrencies, possesses the most future potential. Once the pattern surrounding the BTC dominance ratio has been identified, examine the trend of Bitcoin’s price within the specified time range. Following this, an easy technique can be used to formulate a strategy.

If both the BTC dominance ratio and Bitcoin price are increasing is a great time to buy Bitcoin.

If the Bitcoin dominance ratio rises as Bitcoin prices fall, it is a good moment to sell alternative cryptocurrencies.

Alternate cryptocurrencies should be purchased if the BTC dominance ratio is decreasing and the price of Bitcoin is increasing.

When BTC prices and dominance ratio are decreasing, you should sell Bitcoin.

What is Market Capitalization?

A cryptocurrency’s market value is measured by its market capitalization. The market capitalization measures the dominance and popularity of cryptocurrencies. To make well informed trading decisions a trader must gather as much data as possible.

The current price of a currency is multiplied by the total quantity in circulation to calculate its market capitalization:

The Total Market Cap = The current price X The current circulating Supply

What is the relationship between Market Cap and Bitcoin Dominance?

Since you are now more knowledgeable about bitcoin dominance and market capitalization, the connection between the two should be much simpler for you to understand.

Now, to make things a little bit simpler. The term “Bitcoin Dominance” refers to the percentage of the whole cryptocurrency market’s total capitalization that Bitcoin holds.

Bitcoin Dominance is a metric that indicates whether the performance of other cryptocurrencies is better, worse, or comparable to that of Bitcoin. To determine it, take the entire market capitalization of all cryptocurrencies and divide that number by Bitcoin’s share of that total.

For instance, the current dominance of Bitcoin may be determined using the following formula:

Total Bitcoin dominance = The current BTC market capitalization ÷ market cap of all alts

Since Bitcoin was the first cryptocurrency ever created, it has always had the greatest market share due to its pioneering status. The majority of other coins, in reaction to worldwide significant changes, often follow the movement of Bitcoin. Because of this, the total market cap of all cryptocurrencies tends to move in a manner analogous to that of Bitcoin.

You should now understand the significance of Bitcoin’s dominance compared to that of market cap and how the two have a strong connection.

Conclusion

Understanding the relationship between Bitcoin Dominance and the overall Market cap of the cryptocurrencies is important for traders, to take well-informed trading decisions. 

Bitcoin dominance and market cap are inextricably linked and shows the overall market size at any given time. By comparing Bitcoin’s dominance against the cryptocurrency’s entire market cap traders can decide whether it is a good time to buy altcoins or continue to accumulate and hold their positions in Bitcoin.

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