Crypto traders keep a close eye on one metric in the world of cryptocurrencies: Bitcoin dominance. This index has been tracking for years, and it appears at the top of our homepage.

What is the significance of Bitcoin’s dominance? How should we interpret it? Moreover, how is it calculated? How does it differ from those who argue that it does not give a fair reflection of the crypto market? Here, we will explain how BTC dominance is calculated.

What is Bitcoin Dominance?

BTC market dominance can be calculated easily. The total market capitalization of all cryptocurrencies is $100 billion. If Bitcoin represents $60 billion of this amount, then Bitcoin’s market capitalization would equally represent 60% of that. It does not get much easier than that.

Bitcoin’s dominance over time

The biggest challenge Bitcoin had in 2013 was the volume of its market dominance. Back then, ERC-20 tokens were yet to be created, Ethereum was a figment of Vitalik Buterin’s imagination, and stable coins such as Tether (USDT) were nonexistent.

The situation began to change in 2017 with the advent of the first altcoin season. In February of that year, BTC dominance was 85.4% (ETH had a 5.7% market share, whereas Ripple’s XRP was 1.1% of the cryptocurrency market cap.)

The market capitalization of the cryptocurrency industry boomed substantially over four short months as a spate of initial coin offerings (ICOs) plunged Bitcoin’s share of the market.

During the same period, Bitcoin’s market share in USD increased from $20 billion to $114 billion – a 470% increase. CoinMarketCap’s data shows that ERC-20 tokens, instead of BTC, had emerged as the new currency since June.

During this time, Ethereum enthusiasts began to talk about “Flippening,” which would result in Ethereum’s market cap surpassing Bitcoin’s – a move that did not happen.

After the first bull run in 2017, Bitcoin prices crashed, and by January 2018, the currency’s dominance had declined to 32.8% as a bear market began.

With the end of the alt season comes the loss of significant cash by many first-time investors in failed ICOs.

A study by Ernst & Young assessed ICOs that launched in 2017 a year later and found that 86% are falling below their listing price, 30% of these altcoins have substantially lost all their value, and just 29% are working products or prototypes.

Sobering statistics like these led some countries like the United States to take a dim view of ICOs. There have been lawsuits filed against several blockchain projects whose token sales culminated in a sale of the project’s token.

Furthermore, government bodies issued investment advice that was analogous to saying people should stay away from digital assets due to volatility – telling them to stick with stock investments.

In September 2019, Bitcoin dominance returned to a degree – hitting highs of 70%. However, it is unlikely to see BTC ever break this barrier again.

Cryptoassets are now more diverse and rich than in the early 2010s. There have been many Bitcoin hard forks, such as Bitcoin Cash (BCH).

Now that the cryptocurrency market hype has subsided and new trends such as DeFi have become prominent, some digital assets with practical use cases are gaining traction.

What is wrong with Bitcoin’s dominance

Some analysts warn against taking Bitcoin dominance for granted. These experts point out that this metric does not account for the bitcoins lost forever through hacks or people who accidentally lose their private keys.

Some warn that it ignores Bitcoin’s deep liquidity. An altcoin may have a valuation of $2 billion and threaten to eat into BTC’s dominance, but such a valuation could be artificially inflated.

While BTC’s dominance can provide you with a gentle guide on how much of your investment capital should go into altcoins, you should not limit yourself to one indicator and use other means of analysis.

Final Thoughts

Many media outlets exclusively support Bitcoin, as they believe it is the only cryptocurrency that deserves attention. Bitcoin remains the most recognized cryptocurrency among the public.

Bitcoin is so dominant because it is open to anyone, so most companies want to invest in it. Another good thing about Bitcoin is that it is open to anyone.