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What Makes the Bitcoin Dominance Important?
If you are familiar with the world of cryptocurrency, then you’d be aware that a number of altcoins have begun to lose their luster since last year. The main reason for this, according to market surveys is that more people now prefer to buy bitcoins over alternative cryptocurrencies. This is what is referred to as “Bitcoin Dominance.”
This article explores Bitcoin Dominance and the intricacies of the rising trend in the cryptocurrency world. Some of the concepts explored in the article include:
· Measuring Bitcoin Dominance
· Flaws in Measuring Bitcoin Dominance
· How is Dominance an important market signal?
Measuring Bitcoin Dominance
Bitcoin dominance is obtained through the comparison of Bitcoin’s market capitalization against the combined market caps of all other altcoins. For instance, if the price of BTC is $10,160 and the total number of bitcoins issued is 17.9 million. Multiplying these two figures gives $181 billion which would be the market cap of Bitcoin. This process is then repeated for all other altcoins available on cryptocurrency exchange platforms.
The market caps of Bitcoin and all other altcoins are then expressed in percentages. Bitcoin is found to be at about 69%.
Monitoring the Bitcoin Dominance Chart
When a parameter can be expressed in figures, it can be made into charts with time. This helps to provide relatetable data to study trends over time. This data can also be used to project the bitcoin market. Currently, there are speculations that Bitcoin Dominance could go as high as 80% or even higher.
Some highlights of the existing charts show:
1. Bitcoin’s Dominance was almost absolute till mid-2017 after which it fell below 90% for the first time.
2. Bitcoin’s Dominance steadily recovered over-improving with about 35% over 18 months from its all-time low in January 2018. 3. The trend remained the same until the end of August 2019.
4. For most of the last quarter of 2019, Bitcoin’s Dominance stabilized.
Flaws in Measuring Bitcoin Dominance
While dominance can help make predictions about the crypto market, it also has its imperfections. The major reason for this is that crypto market cap values are often unreliable and dominance calculations depend on these market cap values.
The market capitalization concept in cryptocurrency is imported from the typical stock market, although they do not mean exactly the same thing. For a company, the market cap of a company can be precisely determined by multiplying its stock price its total stock issuance. So, when people describe companies with figures (X-million-dollar company), the value is often the market cap.
And while the market cap concept is used in cryptocurrencies, it doesn’t fit perfectly. This is largely due to the uncertainties in the market cap of bitcoin and other altcoins.
Whereas the amount and status of company stock is a known quantity due to the centralized control of traditional stocks, no such certainty exists for crypto assets. Therefore, the true value of Bitcoin’s unknown. It gets even worse with altcoins.
The issuance and distribution of Bitcoin seemed fair, more so considering:
• Mining Bitcoin was available to everyone from the beginning.
• The launch of Bitcoin was made public.
• The founder of Bitcoin, Satoshi, did not award himself any free coin, he mined all his coins.
This is often not the case for most altcoins. For altcoins:
• The coins are usually launched secretly, thereby limiting the number of early users.
• Mining altcoin is limited. Only people with specialized hardware can mine most altcoin.
• Most altcoin developers often award themselves a huge chunk of coin suppliers from the launch of a coin.
Is Bitcoin’s Real Dominance More than Suggested?
A major advantage enjoyed by bitcoin is the increasing number of altcoins. While market cap calculations are flawed due to the fact that they don’t consider liquidity, Bitcoin remains popular among many users of cryptocurrencies around the world. This grants the Bitcoin market appreciable liquidity, so a person could conveniently sell thousands of BTC without affecting the price of Bitcoin and related market cap.
This is often not the case with a lot of other altcoins. Most of these altcoins are not traded as widely as BTC. And so significant transactions with these coins tend to have notable effects on these coins. Large purchases of these coins can lead to inflation affecting selling significantly. In line with this, it might just be safe to assume that the true dominance of bitcoin is over 90%.
Why Does Bitcoin Dominance?
Irrespective of the imperfections in the calculation of Bitcoin dominance, it is quite an important concept in the crypto market. Most crypto experts would reiterate that dominance remains useful. Changes in the values of Bitcoin dominance can be indicative of how the coin is doing on the market. With Bitcoin dominance, you can identify whether Bitcoin is overperforming or otherwise on the market.