The Bitcoin dominance index shows how the total market value of crypto is divided between Bitcoin and all other crypto currencies.
This index is also called Bitcoin dominance ratio, or Bitcoin dominance for short. The index shows how much influence Bitcoin has within the cryptomarket at any given time.
Like cryptocurrency prices, Bitcoin dominance fluctuates constantly. When the index is rising, proportionately more capital flows into Bitcoin than into altcoins. A falling index means the opposite is going on: proportionately, the value of all altcoins combined is rising relative to Bitcoin's market value.
Bitcoin dominance is calculated by dividing the market capitalization (total value)of Bitcoin by the total market capitalization of crypto. What the market capitalization of Bitcoin is at any given time can be calculated as follows:
Total number of Bitcoins x market value = market capitalization Bitcoin
Bitcoin dominance is calculated by dividing Bitcoin's market capitalization by the total market capitalization of all crypto. This number is expressed as a percentage. Imagine that all crypto combined are worth 800 billion euros. If Bitcoin dominance is 40% this means there is 320 billion euros in Bitcoin. Between 2018 and 2021, Bitcoin dominance has seen values between 35 and 74 percent. The lower the Bitcoin dominance, the stronger the position of altcoins, and vice versa.
Most Bitcoins are already in circulation. The total number of Bitcoin that will be mined is 21 million. This process will continue until 2140. Because the total number of Bitcoin increases slowly, the market price in particular affects Bitcoin's market capitalization.
The dominance index is used as an indicator to detect trends. Traders keep a close eye on this index and also run analysis on it. With a choice of indicators, they try to predict whether Bitcoin will cave in against altcoins or strengthen. Bitcoin dominance is a common analysis tool used to estimate market conditions. However, most traders and investors will not base their strategy on just one index.
