We are all aware that the crypto market has expanded over the last decade and now contains a wide range of coins. While numerous cryptocurrencies have become household names in the digital age, Bitcoin (BTC) remains the most well-known and successful. Bitcoin’s image as a secure and trustworthy cryptocurrency is well-deserved, especially given that it is both the oldest and largest cryptocurrency in existence. The term “Bitcoin Dominance” refers to a metric used by crypto investors to assess bitcoin power. With Bitcoin accounting for a big portion of overall cryptocurrency market value, it is critical to understand what Bitcoin Dominance is, its benefits and drawbacks, and the major factors that influence it on a daily basis. This article was written with that goal in mind. Now, without further ado, let us begin…
What exactly is Bitcoin Dominance?
In some ways, the term hints at what Bitcoin Domination is all about. It simply computes Bitcoin’s current share of the worldwide cryptocurrency market capitalization. In other words, it is Bitcoin’s share of the whole cryptocurrency market capitalization.
The market capitalization is derived by multiplying the number of available tokens by the current price of the coin. The aforementioned Bitcoin Dominance is then computed by dividing the entire market capitalization of all cryptocurrencies by the market capitalization of bitcoin.
For example, if the entire market capitalization of all cryptocurrencies was $10 million and Bitcoin’s market capitalization was $5 million, Bitcoin Dominance would be 50%. Crypto investors and traders can use this statistic to acquire an idea of Bitcoin’s overall market health by measuring a cryptocurrency dominance percentage.
Furthermore, it provides a basic picture of how the market is developing. Taking into account all available data, said investors and traders are able to identify a buying and/or selling opportunity for Bitcoin.
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Why Does Bitcoin Dominance Fluctuate in an Ever-Changing Landscape?
The cryptocurrency landscape is always changing, just as the technological world is evolving at an exponential rate.
To begin, let us define an Altcoin, as this is critical in understanding how and why Bitcoin Dominance swings. Simply put, an Altcoin is a digital currency that exists alongside Bitcoin. The term Altcoin is a combination of the words “alternative” and “coin.” The key point to remember here is that it refers to a group of cryptocurrencies, ultimately all cryptocurrencies other than Bitcoin, rather than a single cryptocurrency.
Therefore, in essence, Bitcoin dominance shifts as Bitcoin’s market cap rises or falls in comparison to Altcoins. While this is the primary reason for shifts in Bitcoin dominance, there are several other things at work. A growth in the number of available Altcoins, for example, will have a direct impact on Bitcoin’s proportion of the whole crypto market.
The Benefits and Drawbacks of Bitcoin Dominance
- As the most liquid cryptocurrency, Bitcoin is exceedingly easy to buy and sell a clear advantage for both traders and investors.
- Bitcoin has developed a strong network effect over the years. As a result, more and more people join the network, thus cementing its domination.
- Finally, because of Bitcoin’s image as a trustworthy cryptocurrency, it is considered as an appealing investment for people seeking a secure asset.
- Despite the fact that Bitcoin is widely regarded as a safe investment, it remains extremely volatile.
- Bitcoin’s blockchain is not as quick as some of the Altcoins, which means that Bitcoin transactions can take longer to process than competing cryptocurrencies.
- Finally, there is the risk of forking, which occurs when the blockchain is split in two. This might be perplexing because it is often impossible to tell whether one is genuine.
Here in this article, we describe the Inside Look: The Curious Case of Bitcoin Dominance. It is easy to see how understanding Bitcoin Dominance can be extremely advantageous to prospective investors and/or traders. If our readers have any doubts, let us know in the comment section below.