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Bitcoin Dominance Index has declined. Why is it important to monitor this indicator?

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Bitcoin Dominance Index

Bitcoin Dominance Index has declined. Why is it important to monitor this indicator?

The first cryptocurrency is losing influence on altcoins. Bitxmi experts explained why this is happening and what it might mean for the market.

Bitcoin Dominance Index

Yesterday, April 5, the total cryptocurrency market capitalization exceeded the $ 2 trillion mark for the first time. Over the past day, the capitalization of the crypto market has increased by 4% and now stands at $ 2.03 trillion. According to CoinGecko, Bitcoin ranks first in the ranking of the most capitalized cryptocurrencies with an indicator of $ 1.09 trillion. The dominance index of the main digital coin is around 54%. But this is the lowest value of the index over the past two years. The last time he was at this mark in April 2019.

What is Bitcoin Dominance Index?

The Bitcoin Dominance Index shows the share of its capitalization in the cryptocurrency market. Until recently, the main digital coin and several other altcoins from the top 5 could boast of a huge influence in the market, but as cryptocurrencies develop, the dominance of bitcoin is declining. This is seen in the market as a sign of healthy change, as investors are interested in a wider range of assets.

Bitcoin dominance can be calculated as follows: divide the capitalization of the main cryptocurrency by the total market capitalization of cryptoassets and multiply by 100%. The first platform to start tracking this indicator was the CoinMarketCap aggregator.

What dominance shows

The Bitcoin Dominance Index is important for understanding the general direction of the market at the moment. If the index declines, it means that investors are rushing towards altcoins, showing a tendency to take risks. This is usually the case in a growing market. If altcoins are actively sold and transferred to bitcoin, it means that risk aversion is growing in the market and a reorientation to a more “solid” cryptocurrency is taking place.

The fall in the dominance of the main cryptocurrency by 1% means an approximate growth of altcoins by 10%. Right now, there is a situation in which the dominance of bitcoin is falling, while altcoins are rapidly growing against this background.

Benefit for the trader

The bitcoin dominance index is used by traders to analyze the market situation and make decisions about entering an asset. Based on this indicator, traders determine a strategy: take positions in the bitcoin market, or move the capital to the altcoin markets, or hedge their assets in dollars or stablecoins.

Read actual crypto news and crypto forecasts every day on https://news.bitxmi.com/

 

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