Bitcoin’s dominance has been a metric used for years now to help understand where it stands in the field of cryptocurrencies. It’s often touted as proof that Bitcoin is either gaining or slipping in value, pushing the idea that others are taking it over. In actuality, the metric means absolutely nothing at this point of the game – and even if it did, Bitcoin is looking amazing.
Understanding the Calculation Itself
Essentially, the calculation is simply taking the market cap of Bitcoin (the number of outstanding coins multiplied by the value of a single coin). If its dominance was at 50%, for example, it means that 50% of all money in cryptocurrencies is sitting in Bitcoin. It going up means more money is being put into Bitcoin or money is being pulled out of other coins, whereas going down means the opposite.
Now, that’s the first flaw. Let’s say we come up with a new coin, named BCF, for Bitcoin Fake. It hits the market and drums up a lot of volume, setting its price at 0.1 BTC each. That means it instantly has 10% of Bitcoin’s market cap, while Bitcoin’s has remained the same, and therefore knocks down Bitcoin’s dominance. In actuality, Bitcoin itself has not changed at all – and could have even gone up in value. But because of the dominance perception, it strikes fear that it’s losing its footing.
Bitcoin is the Center of Altcoins
For the most part, if you want to get into or out of altcoins, Bitcoin is the first step. If you want to dig into IOTA, for example, you need to buy Bitcoin and then exchange that for IOTA. To get back out, you go IOTA to Bitcoin to fiat. This is a very important thing to keep in mind because it means that if an altcoin is doing great, it is still reliant upon Bitcoin. Barring BTC itself, the altcoin would die off since there would be no way in or out of it. While there’s still a growing ecosystem for the coins, the simple fact is that most of the financial backing goes straight to BTC, not to altcoins, and therefore this is not likely to change for some time, if at all.
So What is the Metric Good For?
When it really comes down to it, Bitcoin dominance is meaningless. It doesn’t tell nearly enough of the story, and with so many things reliant upon Bitcoin and so many new coins constantly being released with some value, it’s more of a distraction than a help. Whether its dominance goes up or down, it’s important to follow what is happening behind the scenes, rather than taking that as a sure sign that it’s doing well or isn’t. Instead, one of the most valuable indicators is trade volume, which gives a strong idea of what the market is like for it – and that is something that every cryptocurrency relies on. Even that, however, can be manipulated, as was seen with Huobi and other exchanges in the past offering 0% fees and trading hundreds of millions of BTC per month.