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Tuesday

29 September 2020

3 reasons why the Bitcoin dominance metric is a flawed indicator

3 reasons why the Bitcoin dominance metric is a flawed indicator


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Bitcoin (BTC) dominance has always been one of the first pieces of information displayed on cryptocurrency ranking websites like Coin360 and CoinMarketCap.

As Tether (USDT) and USD Coin (USDC) have seen their market capitalization explode over the past year, should they also be aggregated on the same 'dominance' rankings.

Regardless of the answer, crypto investors need to understand that merely looking at BTC dominance to decide whether or not to change altcoin allocations within a portfolio has become less effective.

Even investors new to the game can understand that multiplying the last trade price by the number of outstanding coins allows one to view the total market capitalization.

It is important to note that a cryptocurrency supply increase will not necessarily increase market capitalization.

Nevertheless, this inflationary pressure looms larger on altcoins and exerts negative pressure on Bitcoin’s dominance rate.

This initial 1,318% move may have created the myth that BTC dominance must go down during cryptocurrency rallies, and the term altcoin season was coined to reflect the perceived rally that takes place when Bitcoin’s dominance rate drops.

BTC dominance has ceded from 70% to 60% throughout 2020, while Bitcoin rallied from $7,100 to the current $10,200 level.

Some investors and analysts point to the whole emerging decentralized finance (DeFi) token movement as a leading factor behind the current shift in Bitcoin dominance

What should be noted is that the current 60% dominance rate cannot be compared side-by-side with previous years

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cointelegraph.com
Market data feeds provided by cryptocompare.com
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