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WHAT IS BITCOIN DOMINANCE
Bitcoin dominance is the measure of Bitcoin's market cap relative to the market cap of the rest of the crypto industry. ... BTC, ETH Price Action: Bitcoin is up 71.58% year-to-date, while Ethereum is up 407.61% year-to-date.
- When Bitcoin dominance is high, it indicates that Bitcoin's market cap is relatively larger compared to that of other altcoins, and vice versa. - Altcoins are correcting at a faster pace than Bitcoin (during a downtrend).
Bitcoin Dominance is a measure of how much of the total market cap of crypto is comprised of Bitcoin. It can help you understand the trend of BTC and alts. See the current Bitcoin dominance.
The most important thing about Bitcoin Dominance is that it can help you understand if altcoins are in a downtrend or uptrend against BTC.
When BTC Dominance increases, alts, on the whole, lose value against BTC.
When BTC Dominance decreases, alts on the whole, gain value against BTC.
This means in most cases you’ll want to be in Bitcoin (or cash) when Bitcoin Dominance is in an uptrend, and then want to be in alts (including ETH, large caps, mid caps, low caps, etc) when Bitcoin Dominance is in a downtrend.
In most cases, a steep and consistent downtrend in dominance happens in crypto bull markets, because intense bull markets tend to propel alt capitalizations higher than Bitcoin. Likewise, a pullback of this trend is typically a sign of a bear market.
It is almost that easy. Of course, Bitcoin Dominance can have different implications on different time frames, and it is ultimately only one tool in a trader’s toolkit.
In short, though, it is important to learn how to read the Bitcoin dominance chart.
Uses For Bitcoin Dominance Index
Traders can use the Bitcoin Dominance Index to gain insight into the market and more specifically, the sentiment of traders. The price of any asset is a function of supply and demand, so the index effectively measures demand for Bitcoin relative to demand for altcoins.
Traders could also use the index to infer the market's risk aversion. At some points, Bitcoin has functioned as a safe-haven asset, serving as a strong store of value during macroeconomic turmoil. By functioning like digital gold, Bitcoin has drawn many investors during these difficult times.
If the value of altcoins starts plunging and Bitcoin does a far better job of holding its value, one could interpret this as meaning that investors are buying up Bitcoin in a "flight to safety."
Summary
The Bitcoin Dominance Index is a metric that investors can use to get a quick sense of Bitcoin's value relative to the broader digital currency market.
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