What is the BTC domain? How to use it in your cryptocurrency exchanges

The cryptocurrency market is highly volatile, making it a potentially risky investment. As a result, traders and investors are coming up with more and more different tools and indicators to track market trends and make the right trading decisions.

One such tool is the “Bitcoin Dominance Index”. The Bitcoin dominance index helps to analyze the different market conditions to determine the strongest market trend between Bitcoin and altcoin.

In this article, we will describe Bitcoin’s dominance, the factors that influence it, and how you can use it to make better trading decisions.

What is Bitcoin’s domain?

Bitcoin’s domain, or BTC’s domain, is the measure of how much of the total value of all cryptocurrencies is made up of Bitcoin. Its basic principle is that if BTC’s dominance increases, the value of the altcoins will decrease. Conversely, if BTC’s dominance decreases, the value of the altcoins will increase. BTC dominance is also called Bitcoin dominance index and Bitcoin dominance ratio.

The level of dominance of Bitcoin is determined by comparing the total market capitalization of Bitcoin with the total market capitalization of all other cryptocurrencies combined.

The term cryptocurrency market capitalization refers to the total market value of cryptocurrencies. The market capitalization of a cryptocurrency is determined by multiplying the total number of coins in circulation by their current price.

The price of a crypto token is not the only way to determine its value. Investors look to market capitalization to get a bigger picture and compare the value of different cryptocurrencies. As a key statistic, market cap can show how much the price of a cryptocurrency could grow and whether it is safe to buy it relative to others.

3 key factors influencing BTC’s dominance

So how does BTC’s strength relate to other cryptocurrencies? What affects BTC’s dominance?

1. Increased use of Altcoins

Bitcoin was created to replace fiat currencies and be a common currency for the transfer of value. On the other hand, many altcoins go beyond being a trading system as they are also used in major projects including gaming, security, art, and many other DeFi services. As a result, Bitcoin’s market dominance decreases as altcoins become more widely adopted.

2. Increased use of stablecoins

We all know that the cryptocurrency market is volatile. To cope with this, many people have started looking at stablecoins, a type of altcoin. A stablecoin is a cryptocurrency whose value is pegged to another asset class to remain stable, such as fiat currency, gold, etc.

With stablecoins, cryptocurrency investors don’t always have to convert their money into fiat currencies to lock in their profits. Instead, they can convert it to stablecoin. Moving your funds from volatile Bitcoin to stablecoins reduces BTC’s dominance.

3. Launch of new cryptocurrencies

Much more coins are being introduced to the market, attracting more users and investors. Some of these coins attract investors and developers in a short time. In an effort to gain market relevance, the project team carries out activities to increase the value of the altcoin. Some altcoins are advertised on social media, causing investors to jump into the price pump for a chance to make money fast. These activities also reduce Bitcoin’s dominance.

There are many ways to make money faster with altcoins than with Bitcoin. The price of Bitcoin is already high and, compared to other cryptocurrencies, it is more stable. Many people are investing in altcoins to profit from more volatile and dramatic market movements.

2 ways to use the BTC domain in trading

Is it possible to use the BTC domain in your cryptocurrency exchanges?

The term “altcoin season” describes a period when the price of alternative cryptocurrencies rises relative to Bitcoin for several weeks or months. This event typically occurs when Bitcoin’s price freezes following a significant rise and investors shift their profits to other coins, kicking off a new bull market for altcoins.

You can locate an altcoin season using the TradingView Bitcoin Dominance Index. The index compares the market capitalization of Bitcoin with that of other cryptocurrencies. The result can be used to determine if it is better to invest in Bitcoin or if altcoins have a stronger trend.

The image above shows that in 2018 and 2022 the market share of BTC has dropped a lot. This long decline in BTC’s dominance could indicate an altcoin season, which could be a good time to invest more money in altcoins.

Using BTC Dominance to trade at market extremes

Between 2017 and 2021, BTC’s market share rose from 75% to 35%. At the time of writing, BTC’s market cap is less likely to exceed 75% soon. However, when the ratio approaches 75%, it may be time to expect a drop in the price of Bitcoin. Furthermore, a ratio close to or below 35% shows that BTC’s dominance is weakening and could also mean that a price move in the opposite direction is imminent. Of course, this is just speculation – you will have to make your own decisions regarding your cryptocurrency investments!

BTC’s dominance may not frequently reach those highs and lows. However, when it reaches them, it would offer investors good trading opportunities.

BTC dominance cannot be used as a standalone indicator

Dominating BTC is a great way to understand the market trend as it shows how strong a Bitcoin trend is compared to other cryptocurrencies. It can give you more information on changing markets and when to change your strategies. However, this strategy does not guarantee that Bitcoin and other altcoins will move as expected. It should be used as a guide only, along with other indicators and strategies.

Additionally, more altcoins will be created and Bitcoin’s dominance ratio may become irrelevant as they gain market share. But until that happens, it would still be a good way to uncover some market trends and identify trading opportunities.

This is not financial advice. If you are interested in any form of investment, you should go to a licensed financial advisor who can give you the best advice based on your needs and risk appetite.

Leave a Reply

%d bloggers like this: