Bitcoin is the most significant cryptocurrency in terms of market capitalization (market cap), and it dominates a substantial share of the trading volume, attracting considerable attention in the cryptocurrency markets. By aggregating the market capitalizations of all existing cryptocurrencies, we can determine the total market cap value for the entire cryptocurrency sector. Consequently, Bitcoin dominance is defined as the proportion of Bitcoin’s market cap compared to all other cryptocurrencies.
For a long period, Bitcoin was indisputably the most significant cryptocurrency and one of the only ones available, holding nearly 100% dominance. However, the emergence of new cryptocurrencies has considerably reduced Bitcoin’s dominance. This decrease is likely associated with the popularity of Initial Coin Offerings (ICOs) after the launch of Ethereum and the ERC-20 token standard.
Interestingly, the dominance of Bitcoin is frequently influenced by the phenomena known as “alt seasons”, where altcoins increase their market share compared to Bitcoin, thereby diminishing Bitcoin’s dominance. However, it’s important to understand that Bitcoin’s dominance isn’t always directly impacted by bullish or bearish markets as it’s a ratio, not an absolute value. This implies that if Bitcoin’s price drops, but the rest of the cryptocurrency market experiences a similar rate of decline, Bitcoin’s dominance will remain unchanged.
While the dominance of Bitcoin is a noteworthy metric to consider, it’s important to remember that it doesn’t accurately represent its true worth, particularly due to the influence of forked and premined coins on the total market capitalization in an artificial manner. Additionally, it’s crucial to understand that market capitalization doesn’t equate to an inflow of funds. It’s merely a calculation derived from the existing supply in circulation and the prevailing market price.
In the era when Bitcoin was the sole cryptocurrency available for trading on exchanges, its dominance was approximately 100%. With the introduction of more cryptocurrencies, its dominance has undoubtedly decreased from 100%, but this is not inherently positive or negative. It merely serves as an instrument that could provide us with a more insightful understanding of the progression within the cryptocurrency sector.
