Hello gang!
I’ve prepared an article explaining how Bitcoin dominance (BTC.D) works. I’ve noticed that many of you frequently track it, so I’ve put together some examples to help you better understand the background of this indicator.
The best part about this is that it’s rooted in mathematics, meaning the calculation is objective and accurate. There’s no room for subjective interpretation—it’s pure science!
What is Bitcoin dominance?
Bitcoin dominance (BTC.D) is an indicator showing what percentage of the total cryptocurrency market (measured by market capitalization) belongs to Bitcoin. If Bitcoin were the only cryptocurrency, BTC.D would be 100%. If Bitcoin didn’t exist, BTC.D would be 0%.
Where can you track the Bitcoin Dominance chart?
There are several websites and apps available, but my favorite is TradingView. It not only allows you to view Bitcoin Dominance but also provides access to charts for other cryptocurrencies, stocks, and more. To display Bitcoin Dominance, simply type “BTC.D” into the search bar. This is the shorthand that brings up the chart showing what percentage of the total cryptocurrency market is represented by Bitcoin.
How is BTC.D calculated?
To calculate BTC.D, we need the following data:
- Total cryptocurrency market capitalization (Total_MarketCap) – this is the sum of the market capitalizations of all cryptocurrencies.
- Bitcoin market capitalization (BTC_MarketCap).
The formula for calculating Bitcoin dominance is:
BTC.D=(BTC_MarketCap / Total_MarketCap)×100
Using this formula, we can determine the current BTC.D. Most of the time, we’re interested in how BTC.D changes over time—whether it’s increasing, stagnating, or decreasing.
Factors influencing BTC.D changes
Understanding the formula is key to interpreting BTC.D’s movements. It’s not just about whether Bitcoin’s and altcoins’ market caps are rising or falling, but also at what speed these changes are happening. BTC.D can increase or decrease in various scenarios.
BTC.D increases when:
- Bitcoin’s market capitalization grows faster than altcoins.
- Bitcoin gains more attention than altcoins, for example, during an upcoming halving event, while altcoins barely move.
- Bitcoin’s market capitalization grows while altcoins’ market capitalization declines.
- Capital flows from altcoins to Bitcoin, often reflecting a shift toward more conservative investments.
- Bitcoin’s market capitalization grows, and altcoins stagnate.
- Bitcoin increases in value due to higher demand, while altcoins remain at the same level, relatively increasing BTC.D.
- Bitcoin’s market capitalization decreases, but altcoins decline faster.
- This scenario is common during market corrections, where altcoins are more volatile and prone to steeper losses.
- Altcoins stagnate while Bitcoin shows slight growth.
- Bitcoin experiences minor growth, while altcoins remain flat, increasing BTC.D.
BTC.D decreases when:
- Bitcoin’s market capitalization declines while altcoins grow.
- This is often associated with an “altcoin season,” when investors see greater growth potential in altcoins.
- Altcoins’ market capitalization grows faster than Bitcoin’s.
- Altcoins experience stronger growth due to new projects, improvements, or increased interest in specific sectors like DeFi or NFTs.
- Bitcoin’s market capitalization stagnates while altcoins grow.
- Bitcoin remains stable, but investors redirect capital into altcoins showing greater potential for growth.
- Bitcoin’s market capitalization declines faster than altcoins’.
- Bitcoin loses value, but altcoins decrease by a smaller percentage, causing BTC.D to fall.
Neutral scenarios (BTC.D stagnates):
BTC.D remains stable when:
- Bitcoin and altcoins grow at approximately the same rate.
- Bitcoin and altcoins decline at approximately the same rate.
- Both Bitcoin and altcoins stagnate with no significant market movements.
Conclusion
Bitcoin dominance (BTC.D) is one of the key indicators for understanding market sentiment in the crypto space. Higher BTC.D usually signals a more conservative market where a larger share of capital is allocated to Bitcoin. Lower BTC.D often indicates higher risk tolerance and greater interest in altcoins.
Understanding the scenarios where BTC.D rises, falls, or stagnates can help you better comprehend market dynamics and make more informed investment decisions.