The first cryptocurrency is losing influence on altcoins. Experts explained why this is happening and what it could mean for the market.
Yesterday, April 5, the total capitalization of the cryptocurrency market for the first time crossed the mark of $2 trillion. Over the past 24 hours, the capitalization of the cryptocurrency market has increased by 4% and now stands at $2.03 trillion. According to CoinGecko, Bitcoin is on the first place in the rating of most capitalized cryptocurrencies with the index of $1.09 trillion. The dominance index of the main digital coin is at a mark of 54%. But this is the minimum value of the index for the last two years. The last time it was at this mark was in April 2019.
Bitcoin dominance in simple terms
Bitcoin dominance index shows the share of its capitalization in the cryptocurrency market. Until recently, the main digital coin and several other altcoins from the top 5 could boast a huge influence in the market, but as cryptocurrencies develop, bitcoin dominance is decreasing, which is considered a sign of healthy change in the market, as investors are interested in a broader range of assets.
Bitcoin’s dominance can be calculated as follows: the capitalization of the main cryptocurrency divided by the total market capitalization of cryptoassets and multiplied by 100%. By the way, CoinMarketCap aggregator was the first platform to start tracking this indicator.
What dominance shows
The Bitcoin Dominance Index is important for understanding the overall direction of the market at the moment. If the index is declining, it means that investors have rushed towards altcoins, demonstrating a tendency to take risks in search of new names. That’s usually the case in a rising market. If altcoins are actively selling and moving into bitcoin, it means risk aversion is growing in the market and there is a shift to a more “hard” cryptocurrency, the head of the Six Nines data center explained.
“Bitcoin is considered the digital equivalent of gold, so over time it is increasingly associated with the precious metal and the market patterns that unfold around gold at one stage or another,” the expert noted.
A 1% drop in the dominance of the main cryptocurrency means an approximate 10% growth of altcoins. There is also a situation in which bitcoin dominance is falling and altcoins are rapidly growing on that background.
Benefits for the trader
Bitcoin dominance index is used by traders to analyze the market situation and make decisions about entering the asset. Based on this index, traders determine the strategy: take a position in the bitcoin market, or move capital to altcoin markets, or hedge their assets in currencies or stabelcoins.