A measure of Bitcoin’s value in the context of the larger cryptocurrency market.
What Is Dominance?
It is used by traders to monitor sentiment within the crypto market. Clearly, the market cap of Bitcoin is an important indicator of how investors are feeling. However, Bitcoin price fluctuations are also often indicative of changes in sentiment across the wider crypto market — meaning insights can be gleaned from the Bitcoin Dominance Index that may be applicable to altcoins too.
There are some factors that investors should bear in mind when consulting the Bitcoin Dominance Index. In particular, there is some disagreement regarding the ultimate use of market cap as a metric. This is because of the high proportion of Bitcoin that is dormant — coins that are sitting in unused or lost wallets, or that the holders have forgotten they have. This is a problem that is exacerbated every time there is a huge price spike and new, amateur investors buy coins, only to forget about their holdings shortly after. The high levels of dormant Bitcoin (as much as 30% of all coins mined, according to some estimates) make market cap a potentially unreliable metric.
However, Bitcoin’s market capitalization remains a powerful illustration of the vast and growing size of the world’s biggest cryptocurrency, and of its importance proportionate to other cryptocurrencies. There are many projects aiming to challenge the dominance of Bitcoin, some of which (particularly Ethereum) offer more advanced applications for blockchain technology than the creation of coins that simply store value.