Introduction
In the volatile world of digital currencies, where prices and trends change rapidly, traders look for analytical tools to help them make informed decisions. Among these tools, the Bitcoin Dominance Index stands out as one of the most important indicators that provide a comprehensive view of market dynamics between Bitcoin and altcoins.
But what is this indicator? And why do analysts closely monitor it?
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What is the Bitcoin dominance index?
The Bitcoin dominance index expresses the ratio of the market value of Bitcoin compared to the total market value of all other cryptocurrencies combined.
🔹 Formula:
> Bitcoin Dominance = (Market Cap of Bitcoin / Total Crypto Market Cap) × 100
For example, if Bitcoin's market value is $800 billion and the total market is $2 trillion, then dominance = 40%.
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Why is this index important?
1. Measuring liquidity flow:
A rise in Bitcoin dominance indicates that investors prefer to move towards the main currency at the expense of altcoins. The opposite is also true.
2. Identifying the start and end of 'Altseason':
A decline in Bitcoin dominance is often associated with the onset of altcoin season, where these coins outperform Bitcoin for a period.
3. An indicator of risk appetite:
Rising dominance may reflect a state of fear in the market, where investors tend to favor relatively safe assets, like Bitcoin. Meanwhile, a decline may indicate more risk-taking and seeking greater profits in smaller projects.
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How is it used in analysis?
🔸 Common trading strategy:
Rising dominance + rising Bitcoin: The market is focused on Bitcoin; altcoins are under pressure.
Declining dominance + stability or rise of Bitcoin: A potential signal for the beginning of altcoin season.
Rising dominance + market downturn: Investors are moving out of altcoins to Bitcoin or even to cash.
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Historical fluctuations of the index
In the early market (2013-2016), dominance exceeded 90%.
During the 2017 bubble, it dropped to below 40% with the explosion of altcoins.
In times of panic or strong downturns, dominance tends to rise again.
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Tools to monitor the index
TradingView: The index can be displayed using the code BTC.D
CoinMarketCap and CoinGecko: They display dominance directly within market data.
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Summary
The Bitcoin dominance index is not just a number, but a key to understanding market psychology and its shifts. For traders and investors, this index represents an early warning signal of changes in general sentiment and potential shifts in the balance of power between Bitcoin and the rest of the market.
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Should you rely on it alone?
Of course not. But it is a valuable tool when combined with other technical and fundamental indicators.
