 In the world of cryptocurrencies, there is one metric that a lot of crypto traders keep a close eye on. Bitcoin dominance. But what is the significance of Bitcoin dominance? Can it actually tell us anything about the performance of outcoins? And what about those who argue that this metric doesn't give an accurate reflection of the crypto market? In today's video, we're going to explain exactly how Bitcoin dominance works. Hey, what's up? Jay here and welcome to Bitcoin Daily bringing you guys the best tips, tutorials and ideas to help you guys become profitable and successful investors. The goal of this channel is to empower you guys with the knowledge and resources to help you get to that next level. So guys, make sure to smash that like button for the YouTube algorithm. And if you're new here, make sure to subscribe and turn on the notification bell. So what is Bitcoin dominance? So Bitcoin dominance is the ratio between the market cap of Bitcoin to the rest of the cryptocurrency markets. To simplify this, let's imagine that the total market cap of cryptocurrency is $100 billion. If out of the $100 billion, the market cap of Bitcoin is $60 billion, then that means that Bitcoin's dominance is 60%. That's really all there is to it. So in this real world case scenario, currently the crypto market cap is estimated around $2.03 trillion, right? Now, Bitcoin's dominance or market cap is $1.04 trillion. So what does that mean? Where does that put Bitcoin's dominance? So according to CoinMarketCap right now, Bitcoin's dominance is at 51.2%, or basically just a tad bit over half of the entire $2.03 trillion market cap. So for many, many years, while Bitcoin was far and away the largest cryptocurrency and really one of the few in existence, its dominance was much closer to 100%, than of course it is today. Back then, ERC-20 tokens didn't exist. Ethereum was just a figment of Vitalik Buterin's imagination and stablecoins such as Tether, USDT weren't a thing either. All of this started to change in 2017 when the first outcoin season began. February of that year, Bitcoin dominance stood at 85.4%. But in the course of four short months, Bitcoin's market share plunged dramatically as initial coin offerings became incredibly popular. All of this started to change in 2017 when the first outcoin season began. February of that year, Bitcoin dominance stood at 85.4%. But in the course of four short months, Bitcoin's market share plunged dramatically as initial coin offerings or ICOs became incredibly popular and boosted the industry's market cap substantially. By June, Bitcoin dominance had fallen to just 40% with liquidity moving over to ERC-20 tokens instead. During this period, Ethereum enthusiasts began to speak about the so-called flippening when Ethereum's market cap would flip higher than Bitcoins, which of course never ended up happening. Bitcoin prices crashed after that first bull run in 2017 and by January of 2018, Bitcoin's dominance was resting at an all-time low of 32.8% as the bear market commenced. Bitcoin prices crashed after the first bull run in 2017 and by January of 2018, Bitcoin's dominance was resting at an all-time low of 32.8% as a bear market commenced. Unfortunately, the outseason was officially over too with many first-time investors losing substantial amounts of money as ICO projects crashed and burned. This is part of the reason why I tell you guys to stay away from the majority of outcoins. I have seen what happens to first-time newcomers who put the majority of their money into these outcoins to try to make that quick money and end up in the long run getting burned and losing their money. So after the bullish bubble burst, Bitcoin's dominance returned to some extent, hitting highs of 70% in September of 2019. However, it's unlikely that we'll see Bitcoin punch through this level ever again. The world of crypto assets is now more rich and diverse than it was in the early 2010s. There have been various Bitcoin hard forks including Bitcoin Cash, new crypto market trends such as DeFi have shifted liquidity to Ethereum and now ICO hype has basically died down and is pretty much non-existent. So how does Bitcoin dominance affect the market? Traders can use the Bitcoin dominance index to gain insight into the market and more specifically the sentiment of traders. The price of any asset is a function of supply and demand. So the index effectively measures demand for Bitcoin relative to demand for outcoins. Bitcoin dominance is often affected by the so-called out-seasons in which outcoins gain market share relative to Bitcoin, thus reducing Bitcoin's dominance. Note, however, that Bitcoin dominance is not always directly affected by bull or bear markets because it is a ratio, not an absolute term. This means that if Bitcoin falls in price but the rest of cryptocurrency market falls at a similar rate, then Bitcoin dominance is likely to remain the same. The most important thing about Bitcoin dominance is that it can help you understand if outcoins are in a downtrend or an uptrend against Bitcoin. When Bitcoin dominance increases, outcoins on the whole usually lose Bitcoin value. When Bitcoin dominance decreases, outcoins on the whole gain Bitcoin value. This means that in most cases you'll want to be in Bitcoin when Bitcoin dominance is in an uptrend and then be in outcoins when Bitcoin dominance is in a downtrend. So let me show you guys a graphic to better help you to understand the Bitcoin dominance cycle. So looking at this, btc.d is Bitcoin dominance, btc is Bitcoin price and outs are of course the outcoin market. So when Bitcoin dominance increases and also Bitcoin price increases, then outcoins usually decrease in price. So why is that? It's because money is going out of the outcoins and into Bitcoin during this time. This usually happens when Bitcoin hits new all-time highs, when it's early in the bull run and Bitcoin is the one leading the way and everybody kind of fomos into Bitcoin. So more and more money go into the Bitcoin market cap, aka Bitcoin dominance, which pushes the price of Bitcoin up, which then people in outcoins, they see their coins not moving. So they sell their coins for Bitcoin because they don't want to miss out and therefore the prices of outcoins decrease. Now the next scenario is when Bitcoin dominance increases, but the Bitcoin price decreases. In that case, then outcoin prices decrease and this is considered a dump. So this is more or less what just happened a few days ago. It happened this weekend where Bitcoin prices went down and outcoins price went down even harder. If you look here at the Bitcoin dominance index chart, you can see that during that period of time, the Bitcoin dominance went up. So Bitcoin dominance was increasing in that scenario. And if you look at the exact same time, you'll see that the Bitcoin price was decreasing. So now if we look at something like XRP, you'll see that of course, this also dumped really bad. You can see in that span, Bitcoin went down 17%. But in the same span, XRP was down 34%. That's double what Bitcoin was down. Now in the next scenario, we have here Bitcoin dominance increasing while the Bitcoin price is stable. During this time, usually outcoin prices are also stable. This is the accumulation phase or consolidation phase. Now people always ask me, what is out season? What does that even mean? So out season is when Bitcoin dominance decreases, but Bitcoin price increases. This causes outcoins to increase very fast. So if you look at Bitcoin dominance daily chart, you'll see that we've been it's been decreasing lately. But looking at the same timeframe for Bitcoin, you see that the price has been increasing. So that's when you're going to see a lot of moves like this here, where an outcoin just kind of takes off. This is what you call out season, basically. Here is another chart here of Doge of it taking off as well. Now you know why it happens. Now we have two more scenarios here. One is Bitcoin dominance decreasing, Bitcoin price decreasing, and the outcoins staying stable. That's because money is going out of Bitcoin and out of the market and into outcoins. But because the Bitcoin price is also decreasing, that also puts selling pressure on people holding outcoins. So usually it puts them in some sort of consolidation phase. And then the last scenario is Bitcoin dominance decreasing while Bitcoin prices are stable. That leads to outcoin prices rising. That's because Bitcoin price is consolidating, more money is going into outcoins, therefore outcoin prices get to go up. So the bottom line is that although Bitcoin dominance is an interesting statistic to look at, one should keep in mind that it does not reflect its real value, especially because of forked and pre mined coins, which impact the total market cap in a very unnatural way. Also worth noting that market cap does not directly mean just influx of money. It is a measurement based on the circulating supply and current market price. So during the times when Bitcoin was the only cryptocurrency tradeable on exchanges, its dominance was roughly around 100%. Today, with more cryptocurrencies in the space, its dominance is certainly way under that. But that is not necessarily a good or bad thing. It's only a tool that may give us a better perspective on how the crypto space is evolving. Guys, I hope you have enjoyed this video. If you did make sure to smash that like button and let us know in the comments if there's any questions that you might have. Also, if it is your first time here on the channel, don't forget to subscribe and turn on the notification bell. We post videos five times a week, Mondays through Fridays. Thank you guys so much. I will see you on the next one. As always, peace and love.