Bitcoin Dominance Explained!
How it effects the market and how to trade around it
Bitcoin dominance or BTCD is one of the most important tool for gauging the market, especially if your goal is to maximize your BTC holdings. But how does it work and how is the percentage share of BTC in the total Crypto market cap helpful for trading in the market?
What is Bitcoin Dominance?
In one line BTCD is the percentage share of Bitcoin in the total crypto market cap i.e.
In simpler words, BTCD is used to show the strength of BTC compared to the altcoins.
Why is Bitcoin Dominance Important?
BTCD is significant in showing the confidence investors have in the altcoins, if BTCD is less say 40%, investors are much more comfortable investing in the altcoins which are much riskier, this generally happens in a Bullish market where high-risk high reward investments like altcoins become much more appealing as the markets are safer.
On the other hand, during a bear market or uncertain markets we see the BTCD rising as confidence in altcoins is lost and people start moving to BTC as it is a much safer alternative for them.
This movement of BTCD during different time periods shows how the markets are going to behave, whether we are in a healthy altcoin market or a fearful bear market.
“BTCD goes up during bull runs and goes down during uncertain bear markets”
How to trade Bitcoin Dominance (BTCD)?
Trading according to the BTCD is a little tricky at first but has some very specific rules. We can start by charting out the BTCD chart and identifying the trend it is following.
If we are seeing a bearish trend on the BTCD and the macro factors (overall market sentiments) are positive it is a signal of alt season and it makes more sense to get into good alts as they are getting ready for a rally.
If we are seeing a bullish trend on the BTCD and the macro factors are negative, it’s best to be in BTC instead of alts as a major dump is on the horizon for most altcoins.
Here is a quick cheat sheet for trading according to the Bitcoin dominance in other cases-
Nothing is 100%
Although most of the time the above information helps make profitable trades markets are risky and crypto markets are riskier so make sure to not trade blindly and follow strict risk management.