How to trade crypto with BTC dominance

Bitcoin (BTC) is both the first and the most prominent cryptocurrency in the world when it comes to both market capitalization and trading volume. These factors are quite important as all cryptocurrencies are traded against Bitcoin and Bitcoin’s dominance can actually serve as a valuable indicator when trading all different types of cryptocurrencies.

This post provides insight into how to trade cryptocurrency while using the Bitcoin dominance indicator and how to read the Bitcoin dominance index chart in general.

What is the BTC Dominance Chart?

Bitcoin dominance is discovered by comparing Bitcoin’s market cap to the entire crypto market’s capitalization. The higher Bitcoin’s market cap, the more Bitcoin dominance is at play, and we have the answer to the question: What percentage of the crypto market is Bitcoin?

The BTC Dominance TradingView Chart showcases these numbers in a clear percentage format that you can quickly glance at and see if the BTC dominance is, for example, 40% or 60%.

That said, users can also check out the Real Bitcoin Dominance Index, which calculates BTC dominance only against proof-of-work (PoW) coins that want to become a form of money.

The logic behind the Real Bitcoin Dominance Index is that many altcoins, such as stablecoins, do not aim to compete with Bitcoin and thus can paint a more realistic long-term picture of Bitcoin’s dominance.

This indicator even gives users the option to exclude Ethereum, as the question is whether Ether (ETH) is intended as a currency rather than a utility token.

How does BTC dominance affect altcoins?

BTC dominance can directly affect altcoins as it shows how much of the market’s trading volume is in BTC versus how much of the trading volume is in altcoins.

In general, if Bitcoin dominance is up, traders recommend having more of their crypto holdings in BTC than in altcoins. If BTC dominance falls, traders recommend having more altcoins than Bitcoin.

While it is wrong to say that Bitcoin dominance is an exact representation of a bear or bull market, there are correlations between these definitions. Bull markets, for example, can lead to lower BTC dominance, as funds typically flow in altcoins at that time.

Conversely, bear markets may see higher BTC dominance as traders can take their money out of altcoins and put money in Bitcoin as it is a more reliable asset.

Some enthusiasts might say that lower Bitcoin dominance is a good thing, as it means the crypto market is growing and funds are flowing through all kinds of projects rather than just Bitcoin. But it’s also worth noting that the total crypto market capitalization will take pre-mined and forked coins in value, meaning the number of altcoins could be artificially inflated.

One should also keep in mind that Bitcoin dominance can decline even when the price of the asset rises. This can happen when money flows into the crypto market, including Bitcoin, although there may be more money going into altcoins than the world’s largest cryptocurrency.

The point is that while Bitcoin dominance may paint the crypto market on a superficial level in some ways, there are several factors to consider in order to get an informed picture.

Sometimes the dominance can wane due to a short-term altcoin boom, while other times the entire market can bleed money. It is always best to do additional research before making an investment decision.

How to trade Bitcoin dominance?

There are multiple factors to consider when trading Bitcoin Dominance. First, understand that Bitcoin dominance can fall if interest in even one altcoin is high. This interest in a single altcoin does not mean that every altcoin will experience upward trends. The market may take some time to correct itself.

It is also best to consider the intent of some popular altcoins and whether or not that intent will translate into a lasting impact on the altcoin market. For example, we can see a stablecoin experiencing a significant increase in volume for now.

However, users can invest in said stablecoin to simply move those funds to Bitcoin as stablecoins can be an easy way to bring money into the crypto industry.

As a result of this activity, Bitcoin’s dominance could rapidly decline and bounce back, negatively impacting short-term transactions. Another factor that can lead to unpredictable short-term declines or rises in Bitcoin dominance is fear of missing out (FOMO).

New coins are constantly entering the crypto market. Some of these new altcoins entering the market are generating massive hype leading to hundreds of thousands of dollars flowing into the altcoin side and disproportionately lowering Bitcoin’s dominance.

However, many new altcoin projects often lose their hype or even become scams, causing users to withdraw their assets as quickly as they entered them. In that case, Bitcoin’s dominance could rise back to its original place.

One must also consider the extremes of Bitcoin’s dominance ratio. For example, Bitcoin’s dominance was over 90% before altcoins entered the market. However, enthusiasts note that Bitcoin’s dominance is unexpected to reach that number again due to the prevalence of altcoins in the current market. But it is impossible to say for sure, as if countries following El Salvador are implementing Bitcoin as legal tender. BTC’s dominance may rise again.

In fact, Bitcoin’s dominance is much more likely to hit new lows than new highs as altcoin projects continue to gain popularity in the mainstream.

As a result, traders should note when Bitcoin dominance is leaning towards an all-time high as that could be a good threshold for BTC dominance to see resistance. Conversely, users should keep an eye on BTC dominance hitting new lows and how the altcoin market is reacting as a result.

What Happens When Bitcoin Drops?

Bitcoin’s price dip may mean diminished dominance as users move money from BTC to other altcoins, but a price dip may also have little to do with dominance as a whole. If Bitcoin dominance falls, users can definitely expect an altcoin bull run and trade accordingly.

That said, a Bitcoin price drop could occur if users withdraw funds from all cryptocurrencies, resulting in an overall lower crypto market cap. In this case, Bitcoin dominance may remain at a certain percentage despite traders’ expectation of a potential bear market.

This example is an essential reminder that Bitcoin dominance should not be the only tool a trader has at their disposal, but rather one of many that should be examined before executing a trade.

The Impact of a Bitcoin Crash on the Crypto Market

Aside from dominance, a significant Bitcoin price crash in the past has often led to an overall market crash, although there are some exceptions. This correlation between Bitcoin and a market crash is simply because Bitcoin is the world’s first cryptocurrency and all crypto assets trade against it.

Look at it this way: if a country considers banning Bitcoin and the price drops significantly as a result, traders and speculators could also lose faith in altcoins and make their money from these alternative investments.

That said, a Bitcoin crash does not always mean an overall market crash. There are multiple occasions when Bitcoin undergoes a significant drop in price while Ether remains more stable. It is important to remember that different assets serve different purposes and the downtrend of one may not correlate with the downtrend of another.

In fact, as time goes on and altcoins enter mainstream consciousness, future Bitcoin crashes may have less and less of an effect on the overall market. Bitcoin dominance is now important as it is still the most popular cryptocurrency in the world. As other coins begin to take that mantra away from Bitcoin, dominance will matter less and less.

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