Bitcoin Dominance Chart Meaning And How To Trade Leveraging It?

When bitcoin was launched in 2009, it comprised 100% of the crypto market. Over time, additional players such as Ethereum, Litecoin, and a slew of alternative coins began to appear. The introduction of the first commercial cryptocurrency sparked the widespread adoption of blockchain technology, peer-to-peer trades, and nearly everything else. As a result, Bitcoin’s market share began to decline while still being a crucial indicator of the overall market capitalization, shifting user perceptions, and the general state of the cryptocurrency industry.

However, it is not bitcoin’s past that makes it so fascinating. We are interested in BTC dominance, a term that is more than just a buzzword and emerges as a tradable indicator, as shown by the bitcoin dominance chart.

What exactly does Bitcoin dominance mean?

BTC dominance is a metric that expresses how dominant Bitcoin is in relation to the entire market. The dominance of bitcoin has become a very useful tool as the altcoin market has expanded (new coins and tokens appear daily). Many cryptocurrency investors and traders favor this resource to hone their trading and investing strategies and portfolios. In other words, 100 x BTC (market cap/total crypto market cap).

Key takeaways

The increasing dominance of BTC shows that Bitcoin is growing relative to other altcoins.

In a bear market, especially, BTC is depreciating less than other correcting altcoins.

A rise in market cap overall during a bull market, with BTC prices moving more aggressively than altcoins.

What is bitcoin dominance chart?

The dominance graph of bitcoin illustrates the idea of BTC dominance. The dominance chart for Bitcoin isn’t your typical trading indicator. It helps in understanding the following:

  • Risk aversion: A rising Bitcoin dominance chart reveals that cryptocurrency investors and traders are becoming less risk-averse. This typically occurs when BTC appears to be the most dependable investment and trading option during a slow bear market.
  • Tradeability: Beyond indexing, BTC has a hegemonic position. Alternatively, Binance allows trading of the BTCDOM/USDT perpetual futures. Therefore, BTC dominance can also be used as a temporary solution. It leverages trading instruments if you understand how to interpret the Bitcoin dominance chart concerning other metrics.
  • Market overview: It is frequently inversely correlated with the total market capitalization due to bitcoin’s increasing stability.

Advantages of Bitcoin dominance chart

The advantages listed below can be obtained by understanding the Bitcoin dominance chart:

  • The beginning of the bear and bull market phases might be discernible.
  • Reversal patterns could be recognized.
  • A new altcoin season, or a time when the value of altcoin increases, may be discernible.
  • Growing BTC market share during a bear phase can predict a market-wide phase of short-term price consolidation.

Disadvantages of bitcoin dominance chart

Here are some drawbacks of bitcoin dominance chart:

  • Surging supply: A lone spike in the bitcoin dominance chart could result from increased BTC supply by mining activity. However, this chart development isn’t helpful when examining the trading moves.
  • Market cap shortcomings: Market capitalization is not always a trustworthy measure of value. Certain altcoins may pack a significant amount of market volume at certain times of the year due to increased trading volume and activity. Even purely emotional factors can raise market capitalization and token prices. If gains in other altcoins are sizable, BTC’s dominance might be weakened. One such sentimental force has been responsible for driving up the price of DOGE.
  • The real bitcoin dominance index: The real indicator can avoid the limitations of the dominance chart. Similar in operation, but only comparing the market capitalization of Bitcoin to coins with proof-of-work. According to this indicator, comparing Bitcoin to other alternative currencies is like comparing apples and oranges.

How to trade crypto leveraging Bitcoin dominance?

Here is how it works:

  • BTC dominance to analyze market trends: The BTC dominance chart follows cycles just like every other chart. Consequently, the idea of recognizing a string of lower highs to identify downtrends can help understand the market breadth.
    A downtrend dominance chart can reveal dilution. This may signal an increase in the use of cryptocurrencies during a bull market. Due to the fact that it shows that investors are becoming more eager to invest in alternative cryptocurrencies, this may point to a trend reversal in a bear market.
  • Using BTC dominance for understanding BTC price: The price and dominance of bitcoin are frequently taken into account when making trading decisions. When dominance and prices increase, a bull market might be approaching. Falling prices and increasing dominance could be signs of a bear market. Finally, if both indicators decline, there may be a stronger bearish trend ahead, followed by sideways movements.

That concludes the conversation about bitcoin’s dominance. It goes without saying that, with a 65% market share, cryptocurrencies play a crucial role in the cryptocurrency industry. Even though it’s not the only one you should use, the bitcoin dominance chart is a useful resource.