Why Monitor The Bitcoin Dominance Index?

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Yesterday, April 5, the total cryptocurrency market capitalization exceeded the $ 2 trillion mark for the first time. Over the past day, the capitalization of the crypto market has increased by 4% and now stands at $ 2.03 trillion. According to CoinGecko, at 14.10 Moscow time, Bitcoin is ranked first in the ranking of the most capitalized cryptocurrencies with an indicator of $ 1.09 trillion. The dominance index of the main digital coin is at around 53.8%. But this is the lowest value of the index over the past two years. The last time he was at this mark in April 2019, writes RBC Crypto.

Bitcoin dominance in simple terms

The bitcoin dominance index shows the share of its capitalization in the cryptocurrency market, said Sergey Troshin, head of the Six Nines data center. Until recently, he said, the main digital coin and a few other altcoins from the top 5 could boast of huge market influence, however, as cryptocurrencies develop, the dominance of bitcoin is declining, which is considered a sign of healthy changes in the market, as investors are interested in a wider range of assets.

The dominance of bitcoin can be calculated as follows: the capitalization of the main cryptocurrency is divided by the total market capitalization of cryptoassets and multiplied by 100%, explained Gleb Kostarev, director of Binance in Russia and the CIS. He noted that the first platform that began to track this indicator was the CoinMarketCap aggregator.

What dominance shows

The bitcoin dominance index is important for understanding the general direction of the market at the moment, Sergei Troshin emphasized. If the index declines, it means that investors are rushing towards altcoins, showing a tendency to take risks in search of new names, he added. According to him, this is usually the case in a growing market. If altcoins are actively sold and transferred to bitcoin, it means that risk aversion is growing in the market and there is a reorientation to a more “solid” cryptocurrency, explained the head of the Six Nines data center.

 

“Bitcoin is considered a digital analogue of gold, therefore, over time, it is increasingly associated with the precious metal and market patterns that unfold around gold at one stage or another,” the expert noted.

 

The fall in the dominance of the main cryptocurrency by 1% means an approximate growth of altcoins by 10%, says Andrey Podolyan, CEO of the cryptorg.exchange cryptocurrency exchange. He also draws attention to the fact that now there is just such a situation in which the dominance of bitcoin is falling, and against this background, altcoins are growing rapidly.

Benefit for the trader

The bitcoin dominance index is used by traders to analyze the market situation and make decisions about entering an asset, explained Gleb Kostarev. Based on this indicator, traders determine a strategy: take positions in the bitcoin market, or move capital to the altcoin markets, or hedge their assets in dollars or stablecoins.

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