Within the cryptocurrency world, the Bitcoin dominance ratio is one of the first metrics created to quantify the strength of the bitcoin price in relation to the total altcoin market cap. It measures the bitcoin market cap relative to the overall value of the cryptocurrency market, it effectively shows the strength of bitcoin compared to all the other cryptocurrencies combined in the form of a ratio. It values BTC versus all other altcoins.
The bitcoin market cap share was greater than 50% at the beginning of 2021. The bitcoin market cap went lower over the summer of 2021 as NFTs (non-fungible tokens) and DeFi (decentralized finance) blockchain applications led to buying demand in Ethereum and new blockchains looking at new greater future utilities.
The Bitcoin dominance ratio figure is meant to show the trend sentiment for bitcoin whether it is bullish or bearish. It quantifies how bitcoin traders and investors are reacting to news events and new competition for Bitcoin. It is important to watch the ratio to see if capital is rotating out of bitcoin and whether it is losing popularity due to the user functions and utilities being developed by stable coins, new blockchain linked altcoins, NFT tokens, utility tokens, blockchain gaming, and metaverse related cryptocurrencies. Bitcoin dominance did grow in October 2021 after a long drop after news that the U.S. SEC (Securities and Exchange Commission) would allow a Bitcoin ETF. The ratio can decline in the short-term on the news that China is banning mining and other negative information and drops the price of bitcoin more than the other altcoins in the short term.
As altcoins grow in quantity and market cap they do gain capital that could have went in bitcoin. It is a high probability that we have seen the peak Bitcoin dominance ratio as Ethereum continues to grow in popularity and utility as it is the blockchain of choice for developers. Bitcoin was the first-mover in the cryptocurrency space as its founder invented the original cryptographic technology. All others have built on this invention and expanded the utility of the blockchain. At the time of this writing the Bitcoin dominance ratio is 41.
Real-time Bitcoin dominance ratio chart here.
Courtesy of Statista