Bitcoin Dominance has been a solid term in the crypto space, revealing how superior Bitcoin is to all other coins(ALT coins).
Bitcoin is not just the first cryptocurrency but also the most prominent cryptocurrency, judging from market capitalization and use case.
Before discussing Bitcoin Dominance, we need to understand market capitalization considering the fact that all cryptocurrencies trade against Bitcoin.
What is Market Capitalization?
In a layman’s understanding, we can see market capitalization as the total amount of money put or invested on a cryptocurrency.
Market capitalization(CAP) is the total amount of coins that have been mined successfully. It has a mathematical formula used for calculating it.
MARKET CAP= CIRCULATION SUPPLY OF COIN * CURRENT PRICE OF COIN
Note: Since market capitalization is a function of price, it means that the market capitalization figure varies from time to time because of price changes.
So, for example, if the total circulating supply of a coin is 100,000, and the current price of the coin is $2. The market capitalization = 100,000 * 2 = $200,000.
With this value, you can say the total network value of the coin is $200,000.
This market capitalization value also makes it easy to calculate the price of a coin by dividing the market capitalization by the total coin circulation(circulation supply).
Bitcoin dominance and its mathematical formula
Bitcoin dominance is simply explained as the superiority of Bitcoin over the entire Crypto coins(ALTCOINS).
Bitcoin dominance is the ratio of Bitcoin’s market capitalization to the market capitalization of the entire Crypto market.
Mathematically given as, BD= Bitcoin MC/ Total cryptocurrency MC.
It’s obvious that all the values above are not constant, as they change from time to time.
Bitcoin dominance continues to increase as larger people hold Bitcoin more than ALT coins.
NOTE: ALT coin is any coin that is not Bitcoin. Therefore all coins are ALT coins except Bitcoin.
Since Bitcoin is more talked about and more trusted than all other coins, the market capitalization of Bitcoin continues to increase, and its Price action continues to affect all other coin actions.
You might have noticed how Bitcoin affects your trades on another coin and how other coins react to it, that’s the result of Bitcoin Dominance.
Bitcoin Dominance saw its all-time high earlier this year and it has started its effect on the crypto market.
What is ALT season?
Alt season is a period of time in the crypto ecosystem when the dominance of Bitcoin decreases and gives ALT coins time to fly. In this season, ALT coins start displaying great bullishness irrespective of Bitcoin’s price actions.
At this time, Money is being pumped into ALT coins leading to a rise in the market capitalization of ALT coins.
A lot of people in the Crypto space smile during this period, because holders of ALT coins are much, so an increase in ALT prices will make greater holders smile to the banks.
The 2021 ALT season was massive as Bitcoin dominance wasn’t felt in the crypto space. Unfortunately, Bitcoin dominance saw its all-time high this year and its value is about 40.4, as of today, according to trading view.
When investors begin to invest more in ALT coins, Bitcoin’s dominance begins to reduce and ALT coins start becoming green-this is what we call ALT season.
Also, when Institutions and investors begin to buy more Bitcoin than ALT coins, Bitcoin Dominance begins to increase.
Why does Bitcoin’s Price Increase result in a small number of ALT coins Increase?
This is a question that few people ask online with many asking themselves offline.
It is so simple. When Bitcoin dominance is high, ALT coins show little price increment even with a Big price increment of Bitcoin. But when Bitcoin’s Price reduces during high Bitcoin Dominance, ALT coins price follows to reduce too.
I will give an example to explain this.
During high Bitcoin Dominance, Investors and institutions are seen buying more Bitcoin leaving ALT coins behind. That’s why Bitcoin Price will be increasing rapidly but ALT coins will be showing slight positive movements.
Also, when Bitcoin’s price starts reducing, ALT coin holders having FOMO starts selling off their ALT coins maybe to buy the DIP later or to convert to stablecoin. That’s why ALT coins price reduces as Bitcoins Price reduces but doesn’t increase equally with Bitcoin.
Bitcoin Dominance effect on Altcoins
In the crypto space, ALT coins are not the same in terms of liquidity and pick-up prices.
Some ALT coins are easy to recover from DIPs because of their high liquidity, unlike other ALT coins.
It is obvious that as Bitcoin dominance continues to increase, some ALT coins will never recover from the DIP that follows.
For example, some ALT coins with great ATHs(ALL TIME HIGH) have not recovered up to half of their ATH ever since the Bitcoin 2021 early DIP.
A dip during High Bitcoin dominance will bring negative effects to ALTs more than any other DIP in history.
During Bitcoin Dip, Bitcoin holders begin to sell off their assets, ALT coin holders follow to sell too. But when Bitcoin picks up to the moon, only a few ALT coins will be able to retain their formal prices before increasing past it again.
It is unfortunate to say that some ALT coins have lost their savor (liquidity) and may take years to recover in the crypto ecosystem.
Why do investors prefer investing in Bitcoin to ALT coins?
It’s a simple question with a difficult answer.
Understanding the fact that Bitcoin controls the entire crypto market is a good turn-on to invest more in Bitcoin.
The issue of ALT coins being unable to recover from DIPs is a turn-off in investing in ALT coins. Although Ethereum and a few ALT coins have good liquidity and use cases, so they easily recover from DIPs, unlike other ALT coins.
Also, the Scams or Rug pull on ALT coins is another Turn-off in buying them, as some people say they only hold Bitcoin alone.
Why are ALT coin holders more than Bitcoin holders?
A lot of ALT coins are tripping into the crypto space all day and the reason is because of technological advancements.
Bitcoin can’t solve Defi issues, so Defi coins must be brought to the crypto space.
However, I feel that the low affordability of Bitcoin and its scarce supply is the reason why ALT coins have a lot of holders than Bitcoin.
Currently, the DOGE coin has more holders than Bitcoin.
Conclusion
Bitcoin is the revolution of money, if you can’t hold Bitcoin then Hold ALT coins with good value and use cases.
You can drop your comments or contact us to give your Bias on this article.
Disclaimer
Cryptocurrencies are volatile and their prices are hardly predicted. You are therefore advised to research and invest at your risk.