Crypto Market Dominance: Understanding Power Distribution

Dominance is a measure of Bitcoin’s value in the context of the larger cryptocurrency market.

What is Dominance?

The Bitcoin Dominance Index is calculated by CoinMarketCap and tracks the total market capitalization of Bitcoin in relation to the capitalization of all digital assets. The purpose of this index is to demonstrate bitcoin’s fundamental nature to the cryptocurrency market and to draw attention to its enormous value compared to other digital currencies.

Traders use the Dominance Index to track sentiment in the cryptocurrency market. Bitcoin price fluctuations also often indicate changes in sentiment in the broader cryptocurrency market, which means that conclusions can be drawn from the Bitcoin Dominance Index that can be applied to altcoins as well.

There are a number of factors that investors should consider when examining the Bitcoin Dominance Index. For example, there is some controversy over the ultimate use of market capitalization as a metric. This is due to the fact that much of bitcoin is dormant – the coins are in unused or lost wallets, or the owners have forgotten they have them. This problem is exacerbated every time there is a price spike and new amateur investors buy coins, but soon forget about their holdings. Because of the large number of dormant bitcoins (some estimate up to 30% of all mined coins), market value is a potentially unreliable metric.

Bitcoins market capitalization continues to be a compelling demonstration of the vast and growing size of the worlds largest cryptocurrency, as well as its importance relative to other cryptocurrencies. Many projects are trying to challenge bitcoins dominance, (particularly Ethereum) by providing a more advanced application of blockchain technology than creating coins that simply store value.