What is Bitcoin Dominance?

Bitcoin dominance refers to the ratio of Bitcoin’s total market capitalization compared to the total market capitalization of the entire cryptocurrency market. This dynamic ratio reflects Bitcoin’s relative value and influence within the crypto space. Bitcoin dominance can be calculated by dividing Bitcoin’s market cap by the overall market cap of all cryptocurrencies.

The total market capitalization of any cryptocurrency fluctuates based on factors like the number of coins mined and the price per coin. As a result, Bitcoin dominance also changes over time. Market cap is an important indicator of a cryptocurrency’s stability. While all cryptocurrencies, including Bitcoin, exhibit volatility, larger market caps generally indicate greater stability. Just as a larger ship can better navigate rough waters, cryptocurrencies with a larger market cap tend to be less volatile than smaller ones.

Bitcoin dominance index in the past 3 months. Source: CoinStats

Key Factors Affecting Bitcoin Dominance

Several factors influence Bitcoin’s dominance within the crypto market:

Bitcoin Season vs. Altcoin Season

The terms “Bitcoin Season” and “Altcoin Season” refer to periods when the focus of the crypto market shifts between Bitcoin and other cryptocurrencies (altcoins).

Market cap & volume of all altcoins. Source: Coingecko.

Bitcoin Dominance Over Time

Bitcoin’s dominance has fluctuated considerably since its inception. In the early years, Bitcoin’s market dominance was overwhelmingly high. In 2013-2014, Bitcoin dominated the market with a dominance rate of around 94%, as there were very few alternative cryptocurrencies.

The rise of Ethereum in 2017, followed by the ICO boom, significantly impacted Bitcoin’s dominance. By March 2017, Bitcoin’s dominance had dropped to around 85%, and by mid-2017, it had plunged to as low as 38%. This period marked the start of the 2017 Altcoin Season, with thousands of new cryptocurrencies entering the market.

Bitcoin experienced a brief recovery in 2017, with dominance climbing to 62% by December. However, during the 2018 crypto bear market, Bitcoin’s dominance fell to its all-time low of 32.8%. Over the course of the bear market, Bitcoin’s dominance began to recover, reaching a temporary peak of over 71% in January 2021.

From 2022 onwards, Bitcoin’s dominance has seen a steady decline, hovering between 40-48% throughout 2022. Even after the Bitcoin halving event in April 2024, Bitcoin’s dominance has continued to fluctuate, although there has been a slight increase.

The Bitcoin dominance percentage as compared to other cryptocurrencies in the top 10 ranking. Source: Coingecko

How to Take Advantage of Bitcoin Dominance

Bitcoin dominance is not only a useful metric for evaluating the health of the cryptocurrency market but also an indicator that investors can leverage to make more informed decisions. Investors who understand the practical applications of Bitcoin dominance can potentially profit through strategies like shorting or portfolio diversification.

Bitcoin Dominance Cycle

The market cycle for Bitcoin and altcoins generally follows a predictable pattern:

This cycle underscores the importance of timing and market sentiment when making investment decisions. Investors who closely monitor Bitcoin dominance can better anticipate shifts in the market and adjust their strategies accordingly.