A measure of Bitcoin's value in the context of the larger cryptocurrency market.
Dominance typically refers to the valuation of Bitcoin, and to a lesser extent, Ethereum, relative to the valuation of the overall cryptocurrency market. The
Bitcoin Dominance Index is provided by CoinMarketCap, and keeps track of Bitcoin's total market capitalization relative to the
total market cap of all
digital assets.
This metric is intended to demonstrate the foundational nature of Bitcoin — the first cryptocurrency created — to the cryptocurrency market, and to underscore its hugely outsized value when compared with other digital currencies.
It is used by traders to monitor sentiment within the crypto market. Clearly, the
market cap of Bitcoin is an important indicator of how investors are feeling. However,
Bitcoin price fluctuations are also often indicative of changes in sentiment across the wider crypto market — meaning insights can be gleaned from the Bitcoin Dominance Index.
There are some factors that investors should bear in mind when consulting the Bitcoin Dominance Index. In particular, there is some disagreement regarding the ultimate use of market cap as a metric. This is because of the high proportion of Bitcoin that is dormant —
coins that are sitting in unused or lost
wallets, or that the holders have forgotten they have. The high levels of dormant Bitcoin (as much as 30% of all coins mined, according to some estimates) make market cap a potentially unreliable metric.
However, Bitcoin's market capitalization remains a powerful illustration of the vast and growing size of the world’s biggest cryptocurrency, and of its importance proportionate to other cryptocurrencies. There are many projects aiming to challenge the dominance of Bitcoin, some of which (particularly Ethereum) offer more advanced applications for
blockchain technology through the use of smart contracts.