Imagine Bitcoin as the sun in the crypto solar system. It is the brightest and most powerful coin out there. And just like the sun’s gravity, it pulls other altcoins around it. This is probably something you have noticed if you have stayed long enough in the crypto space. When Bitcoin pumps, some altcoins skyrocket. Similarly, they dip whenever Bitcoin dumps.
Needless to say, there is a strong connection between Bitcoin and the value of other altcoins. Understanding this relationship makes it easy to make an informed crypto investment. In this article, we will be discussing how the behavior of Bitcoin can either make or break the prices of other altcoins.
Let’s get right into the conversation!
KEY TAKEAWAYS:
- Bitcoin dominance or BTC dominance is a metric that tells us how much of the total cryptocurrency in the market is made up of Bitcoin.
- Bitcoin is the market leader because it is the first crypto, and it has the strongest recognition.
- One of the signs of the start of an altcoin season is that Bitcoin has had a strong run and is now stabilizing.
- You can use BTC dominance to your advantage by rotating your portfolio, watching for divergence, and avoiding altcoins during BTC surges.
What Is Bitcoin Dominance?
Bitcoin dominance or BTC dominance is a metric that tells us how much of the total cryptocurrency in the market is made up of Bitcoin. Here is the formula:
Bitcoin Dominance = (Bitcoin’s Market Cap/Total Crypto Market Cap) x 100
So, let’s say the entire crypto market is worth $1 trillion, and Bitcoin alone is worth $500 billion. It means Bitcoin’s dominance is 50%. It is important to note that this percentage changes all the time.
Understanding BTC’s dominance gives you an idea of investors’ latest sentiment about the market. When the dominance is high, it means funds are flowing into Bitcoin. When it is falling, it shows that people are spreading their money into other altcoins. This response signifies optimism, more risk-taking, or even greed among traders.
Why Is Bitcoin the Market Leader Anyways?
In simple terms, we can say it is because Bitcoin came out first. This crypto went mainstream in 2009 and was built on the idea of decentralized money. It has remained the standard ever since. That said, here are more reasons Bitcoin continues to dominate the market:
- It has the strongest recognition and trust in the crypto world.
- It has many buyers and sellers, which makes it easy to trade.
- Its upward trending and relatively stable price makes it a good store of value. This is why it is called digital gold.
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How Bitcoin’s Price Influences Altcoins
Altcoins (short of “alternative coins”) are made up of every other crypto that is not Bitcoin.
Of course, when Bitcoin moves, altcoins react. However, the relationship between these categories of assets is not always that simple. Here is an overview of different scenarios and what to expect:
- When Bitcoin rises slowly and steadily: Money flows from Bitcoin profits into popular altcoins like Ethereum, Cardano, or Solana because investors believe the market is safe.
- When Bitcoin rises sharply: People rush into Bitcoin to enjoy huge profits from the rally. They sell more of their altcoins to buy Bitcoin.
- When Bitcoin falls: Altcoins experience extreme drops. This situation is a classic case of “when the tide goes out, all boats go down.”
A general rule of thumb to keep in mind is that a high Bitcoin dominance above 50 – 60% means altcoins are struggling. On the flip side, a low dominance that is below 40% signals that altcoins are thriving.
What Then Is “Altcoins Season” and How Does It Start?
Altcoin season, or altseason, is that time when altcoins go on explosive runs, such that they outpace Bitcoin by huge margins. Altseason is not usually a sudden event. On the contrary, some signs indicate that it is on its way. These include:
- Bitcoin has had a strong run and is now stabilizing.
- Bitcoin’s dominance is starting to fall.
- Ethereum and other major altcoins are outperforming BTC.
- You are seeing updates like “this low-cap gem is next!” from traders on social media.
How to Use BTC Dominance in Your Strategy
If you’re trading or investing in crypto, watching Bitcoin dominance is like checking the weather before going outside. Here are some practical ways to use it:
- Rotate your portfolio: When BTC dominance is rising, you should consider investing more in Bitcoin. If it is falling, it might be best to explore other altcoins.
- Watch for divergence: if Bitcoin is pumping but its dominance is falling, it is a good time to invest in altcoins.
- Do not buy altcoins during BTC surges: When Bitcoin is in the middle of a major breakout, it often sucks all the energy out of altcoins. Therefore, it is better to wait until things cool down before buying altcoins.
In Conclusion
Love it or hate it, Bitcoin is not going anywhere anytime soon. It is the undeniable heartbeat of the crypto market. If you want to make smart crypto investments, keep an eye on Bitcoin’s dominance. Always remember that the best way to make a profit in the crypto market is to take your time to understand how things work.
References
- coingecko.com – What Is Bitcoin Dominance and How To Use It
- tokenmetrics.com – Bitcoin Dominance – What it is and How it Affects Altcoins
- coinmarketcap.com – Bitcoin’s Impact on Altcoins: Understanding the Connection
