BTC Dominance Index: how to use it?

icon BTC
Photo - BTC Dominance Index: how to use it?
The BTC Dominance Index is an indicator that shows bitcoin’s share in the total capitalization of cryptocurrencies. The higher dominance is, the more considerable influence of BTC on market
According to the analytical website Coinmarketcap, the total value of all cryptocurrencies in the world is $985 billion, of which $380 billion, that is 39.5%, accounts for bitcoin. This index is called the “dominance of BTC”. The TradingView service began calculating the index in March 2014, and during the first three years, the index was at a level of more than 95%. 
BTC Dominance Index in 2014-2017 (TradingView)

BTC Dominance Index in 2014-2017 (TradingView)

In 2017, the ICO boom began, after which retail investors started actively investing in altcoins. This caused bitcoin’s dominance to fall and the capitalization of other crypto projects to rise. During the “bear cycle”, when the crypto market was in decline in the 2018-2020s, BTC’s dominance was growing, but the price of bitcoin itself was declining. This is because the volatility of altcoins is much higher than that of the main cryptocurrency. Due to this, altcoins rise more in a bull market and fall more in a bear market. 
BTC Dominance Index for all time (TradingView)

BTC Dominance Index for all time (TradingView)

BTC dominance does not necessarily correlate with the price. When bitcoin’s value falls, and other cryptocurrencies’ prices fall at a similar rate – BTC dominance will remain at the same level.

How to use BTC dominance in trading?

BTC Dominance Index shows the interest of investors in the main cryptocurrency. If the dominance is growing, users accumulate Bitcoin and get rid of other assets. If the dominance is falling – then the priority is to buy altcoins. 

Thus, the dominance index is an auxiliary tool for forming an investment portfolio. The index gives traders an understanding of whether to move funds from bitcoin to altcoins, invest more actively in altcoins, or wait out market fluctuations by converting capital into stablecoins.