We will all be aware that the crypto market has grown over the last decade and has a huge variety of cryptocurrencies within its borders. While many cryptocurrencies have established themselves as household names in the digital age, Bitcoin (BTC) is still the most famous and the most successful. Bitcoin’s reputation as being a safe and trustworthy cryptocurrency has been well earnt, especially when considering that it is both the oldest and the largest cryptocurrency in existence.
One factor that crypto investors make use of in order to measure the influence of bitcoin is referred to as Bitcoin Dominance. With Bitcoin accounting for a large percentage of the total cryptocurrency market capitalization, it is important to understand what Bitcoin Dominance is, its advantages and disadvantages, and the principal factors that affect it on a daily basis. This article was put together in order to do just that. So, without further ado, let’s get started…
What is Bitcoin Dominance?
In a sense, there is a big indication in the name as to what Bitcoin Dominance is. It simply calculates Bitcoin’s current share of the global crypto market cap. In other words, it is the percentage of the entire cryptocurrency market capitalization possessed by Bitcoin.
The market cap is calculated by multiplying the number of available tokens by the token’s current price. The aforementioned Bitcoin Dominance is then calculated by dividing the market capitalization of bitcoin by the total market capitalization of all cryptocurrencies.
For example, if the total market cap of all cryptocurrencies was $10 million and the market cap of Bitcoin was $5 million, then Bitcoin Dominance would stand at 50%. By calculating a cryptocurrency’s dominance percentage, crypto investors and traders are able to use this metric in order to gain an understanding of Bitcoin’s overall health in the market.
Furthermore, it offers a general picture of the how the market is shaping up. By taking into account all of the data available, said investors and traders are able to identify an opportunity to buy and/or sell Bitcoin.
An Ever-changing Landscape: Why Does Bitcoin Dominance Fluctuate?
Just as the technological world is developing at an exponential rate, the cryptocurrency landscape is always changing.
Firstly, let’s establish what an Altcoin is as it is crucial in understanding how and why Bitcoin Dominance fluctuates. To put it simply, an Altcoin is an alternative digital currency to Bitcoin. The word Altcoin being a portmanteau of “alternative” and “coin”. The main thing to understand here is that it refers to a group of cryptocurrencies, ultimately all the cryptocurrencies other than Bitcoin, as opposed to an individual cryptocurrency.
So, in essence, Bitcoin Dominance fluctuates due to the fact that Bitcoin’s market cap rises or drops in relation to Altcoins. While this is the principal reason for changes in Bitcoin Dominance, there are some additional factors that play their role. For example, an increase in available Altcoins will in turn directly impact Bitcoin’s share of the total crypto market.
The Advantages & Disadvantages of Bitcoin Dominance
As the most liquid cryptocurrency, Bitcoin is incredibly easy to buy and sell, a clear advantage for both traders and investors.
Bitcoin has, over the years, established a strong network effect. This results in more and more people joining the network, thus reinforcing its dominance.
Finally, with Bitcoin’s reputation for being a trustworthy cryptocurrency, it is viewed as an attractive investment for those looking for a secure asset.
Despite the fact that Bitcoin is generally viewed as a sound investment, it is still highly volatile.
For traders who want to move fast, Bitcoin’s blockchain is not as speedy as some of the Altcoins, meaning that Bitcoin transactions can take longer to process than rival cryptocurrencies.
Last but not least, there is a risk of forking, which is when the blockchain is split into two. This can prove to be confusing as it is often difficult to spot which one is genuine.
Over & Out: The Bottom Line
It is clear to see how an understanding of Bitcoin Dominance can be incredibly beneficial to potential investors and/or traders.
There are some great resources online, including https://learncrypto.com/knowledge-base, that will allow you to gain an in-depth understanding of everything crypto, providing you with the ideal foundation to take a closer step in joining Bitcoin in the world of dominance.