What is dominance in the crypto universe?
Dominance in the crypto world refers to the percentage of a certain cryptocurrency’s market capitalization in relation to the capitalization of the whole crypto market. It's important to note that the word “dominance” doesn’t mean that a coin actually dominates the entire market; rather, it represents the proportion of this dominance, which can vary significantly.
To calculate the dominance, you simply take a coin's market capitalization, divide it by the total crypto market capitalization, and multiply the result by 100. That’s all, and you'll have a clear understanding of its dominance.
Why care about dominance when having market capitalization?
Market capitalization is a crucial metric for every cryptocurrency, as it indicates the size of a particular coin's market presence. Yet still, capitalization is just a figure that might not give any context and makes comparisons challenging.
Dominance, on the other hand, shows a relative figure within the market. Therefore, comparing different coins and identifying new trends and patterns becomes easier.
Which coins have the biggest dominance?
The cryptocurrencies with the largest dominance are typically those that are the most popular and valuable. It’s hardly possible that in 2023 one may hear such a question as “What is Bitcoin?”. A more popular question these days is, “What is the current price of Bitcoin?” But that’s another book. Besides Bitcoin dominance there is also Ethereum dominance, USDT dominance, etc.
Bitcoin, being the first cryptocurrency, once had 100% dominance. Over the years, this percentage has decreased, but BTC is still a market leader by this metric. Now, the Bitcoin dominance stands at around 50% (and it might decline further with the introduction of new coins).
Ethereum (ETH USD) is, predictably, in second place, holding approximately 19% of the market share.
Stablecoins like USDT also have a notable presence in terms of dominance.
What other types of dominance to consider?
As you’ve probably noticed, you can find or calculate the dominance of every single cryptocurrency. However, it might not be enough for analysis due to the overwhelming presence of major players like Bitcoin. Movements in small coins’ dominance can be almost invisible.
To address this, there are metrics that exclude Bitcoin or other dominant cryptocurrencies. They allow knowing more about trends in coins with smaller capitalization. Additionally, you can track the dominance of specific crypto categories, such as DeFi coins.
How to use dominance for research?
Dominance serves as a valuable tool for identifying various trends and patterns. Imagine, you see a decline in Bitcoin dominance. Most likely, it means that crypto investors are anticipating higher returns from altcoins rather than Bitcoin. If BTC is on the rise, then an opposite conclusion draws itself.
There are similar trends tracking the dominance of Ethereum, USDT, DeFi, altcoins, and other smaller-cap coins. In other words, the dominance signals that something noteworthy is happening in the market and warrants your attention. It could signify increasing demand for a particular coin or a competitor's price decline.
Of course, there are no rules, but there are regularities that might be useful. Dominance should not be the sole focus of your analysis. Utilize a variety of other statistics and indicators to conduct comprehensive and efficient research.
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