One of the Most Important Crypto Indicators: Bitcoin Dominance

The so-called Bitcoin dominance is one of the most important indicators in the crypto markets. crypto. 

From a strictly technical standpoint, it is not a particularly significant figure in itself, especially since its measurement is based on very theoretical and not very concrete calculations. However, its variation over time is an excellent gauge of the trend in interest towards altcoins. 

It is a parameter that has existed for many years, although its significance has changed over time due to the massive proliferation of altcoins. 

Market Capitalization

Before delving into the specifics of what Bitcoin dominance is and how it functions, two important clarifications must be made. 

The first is that it is calculated based on market capitalization. 

In the crypto markets, however, market capitalization is not an actual figure, but merely a theoretical calculation obtained by multiplying the total number of tokens of a crypto released over time by the price of a single token at a given moment. 

Therefore, for example, if approximately 19.950 million Bitcoins have been issued, and the price of a single BTC is around $90,000, the market capitalization of Bitcoin would be $1,795.5 billion. 

The issue is that it is not true that there are 19.950 million BTC in circulation: this is purely a theoretical figure. In fact, at least 3 million, if not 4, have actually been lost forever, because although they were indeed released, their private keys necessary to move them have been lost, rendering them unusable. 

For example, on crypto exchanges, where they are actually traded, there are only just over 2 million BTC, which is slightly more than 10% of all those created and released to date. 

Moreover, the price fluctuates continuously, and if at any given moment they were all put up for sale, the price would plummet, causing the market capitalization to collapse as well. 

Altcoins

The same reasoning applies to altcoins as well. 

For example, if a total of 120 million Ethereum have been issued, and one ETH is worth approximately $3,000, the total market capitalization would be $360 billion, but the same discussion as above applies. 

This reasoning can be applied to all cryptocurrencies, although the percentage of lost tokens varies greatly: it is very high for Bitcoin, but for example, very low for stablecoins. 

Moreover, although altcoin refers to all cryptocurrencies and tokens present in the crypto markets that are not Bitcoin (thus starting from Ethereum), technically this category would also include stablecoins, which are not actual cryptocurrencies but tokenized traditional fiat currencies. 

This means that the mere calculation of dominance doesn’t make much sense in itself, but the fact remains that its variation over time is very interesting. 

The Calculation

The “dominance” of Bitcoin refers quite simply to the percentage of the total crypto market capitalization that is occupied by Bitcoin’s market capitalization. 

Therefore, if, for example, the total market capitalization of all cryptocurrencies, including Bitcoin, altcoins, and stablecoins, were $3.160 trillion, and Bitcoin’s alone were $1.800 trillion, Bitcoin’s dominance would simply be approximately 57%, or 1800/3160*100.

It is a very simple calculation, but it presents some interpretation issues. 

The first point, as mentioned earlier, is that market capitalization does not account for tokens that are actually lost forever, and thus “burned” because they are no longer usable. It also does not consider the fact that there are more of these on Bitcoin and fewer on altcoins. 

The second is that it makes little sense to include the market capitalization of stablecoins in these calculations. 

However, there is a parameter called Total3, which measures the overall market capitalization of altcoins excluding Ethereum, stablecoins, and Bitcoin.

With a Total3 of approximately 900 billion dollars, adding the 1,800 billion of Bitcoin and the 360 billion of Ethereum would result in 3,060 billion dollars, which is less than the 3,160 billion that also include stablecoins. However, in this case, Bitcoin’s dominance would rise to just under 59%.

The Variations

What matters most, therefore, is not that 57% or 59%, but its variation over time. 

In fact, when Bitcoin’s dominance rises, it means that the interest of the crypto markets is focused on BTC, while when it falls, it indicates a focus on altcoins. 

Until 2017, Bitcoin’s dominance was almost always above 80%, because it was only that year that the first major explosion of altcoins occurred. 

In fact, during the altseason of late 2017/early 2018, Bitcoin’s dominance reached its all-time low, dropping briefly to just over 33%. Since then, it has never fallen below 37% again.

During the 2018/2019 bear-market, BTC dominance rose to nearly 70% and remained above 60% until the peak in April 2021. 

During the altseason of 2021, it dropped to as low as 40%, and reached a local minimum at the peak of the bear market in 2022. 

At that point, it began to rise again, returning to 65% in June of this year. 

It is precisely the extent of these variations that is interesting, because it shows when the attention of the crypto markets shifts to or from altcoins. 

It is noteworthy that since April 2017, it has never risen above 70% again, but also that the recent increase over the last two years has brought it just slightly below the local peak of 2020 despite the massive proliferation of altcoins.