Real Bitcoin Dominance: Why Excluding Stablecoins is Essential?
Real Bitcoin Dominance: Why Excluding Stablecoins is Essential?
In the dynamic world of cryptocurrencies, a correct understanding of indicators is crucial for informed decision-making. One of the most important indicators is “Bitcoin dominance,” which shows Bitcoin’s share of the total crypto market value. However, a major misunderstanding exists in the crypto market, known as “gross Bitcoin dominance.” This article helps you gain a deeper understanding of real Bitcoin dominance by excluding the impact of major stablecoins like USDT, USDC, and DAI.
Misunderstanding Bitcoin Dominance in the Crypto Market
For years, investors and analysts used the Bitcoin dominance indicator to gauge the health of the altcoin market and market cycles. However, since 2022, various American companies have created enormous volumes of stablecoins. This significant increase has changed the equation.
These stablecoins are no longer solely used for purchasing crypto assets. Their applications have expanded significantly:
- In many countries facing national currency issues, people use stable currencies to preserve dollar value.
- Even the underground economy is slowly shifting from cash transactions to using dollar-pegged stablecoins.
These changes mean that “gross Bitcoin dominance” presents a misleading picture of the market’s true state. A significant portion of the cryptocurrency market cap consists of stablecoins that merely act as a store of dollar value and do not necessarily lead to buying other digital currencies. For related market news updates, you can visit this section.
Calculating Real Bitcoin Dominance
To obtain a more realistic perspective, we must define “real Bitcoin dominance.” This indicator should be calculated based on the ratio of Bitcoin’s market cap to the combined real market cap of Ethereum, other altcoins, and tokens. This mirrors the approach we used before 2020 to judge Bitcoin’s dominance. At that time, the stablecoin economy was very small and almost entirely used for buying crypto assets.
Given the increasing growth of the dollar-pegged stablecoin economy today, we need to subtract the stablecoin market cap from the total cryptocurrency market value to achieve a more accurate real Bitcoin dominance indicator. In the chart this analysis is based on, we have subtracted the market value of the three main stablecoins: USDT, USDC, and DAI.
You might wonder why we have not included other stablecoins in this calculation. The reason is that adding newer stablecoins would limit the chart data from 2023 onwards, making it impossible to observe trends before 2020. This approach helps us maintain a more historical and comprehensive view.
Analyzing the Real Bitcoin Dominance Chart
The real Bitcoin dominance chart, after subtracting stablecoin market cap, reveals a distinctly bullish picture. This indicator currently sits above the 21-week Exponential Moving Average (21-week EMA), signifying strength and a positive trend for Bitcoin. This situation can be a positive signal for investors who seek to understand market depth and Bitcoin’s growth potential compared to other digital assets.
This analysis shows that despite the significant growth of stablecoins, Bitcoin’s position in the real cryptocurrency market remains robust. A correct understanding of this indicator provides valuable insights for you. For more educational content and analysis reports on this topic, follow our resources.
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Frequently Asked Questions (FAQ)
What is Bitcoin dominance, and why is its traditional calculation currently misleading?
Bitcoin dominance is an indicator showing Bitcoin’s share of the total cryptocurrency market cap. Its traditional calculation, known as ‘gross dominance,’ is currently misleading because it includes a massive volume of stablecoins (like USDT, USDC, DAI). These stablecoins are no longer solely used for buying crypto assets; people use them as a dollar-value store or in the underground economy, providing an unrealistic picture of Bitcoin’s true power in the digital asset market.
How do you calculate “Real Bitcoin Dominance,” and why is excluding stablecoins essential in this calculation?
“Real Bitcoin Dominance” is calculated by subtracting the market cap of major stablecoins (like USDT, USDC, and DAI) from the total cryptocurrency market and then determining Bitcoin’s market cap ratio to this remaining value. Excluding stablecoins is essential because they often serve as tools for preserving dollar value or for transactions outside of altcoin investment. Including them prevents the Bitcoin dominance indicator from accurately reflecting Bitcoin’s competitive strength against other digital assets.
What uses for stablecoins cause their inclusion in the Bitcoin dominance index to lead to misinterpretation?
In addition to buying other cryptocurrencies, stablecoins have found broader applications. In many countries with unstable national currencies, people use stablecoins to store dollar value. The underground economy is also gradually shifting from cash transactions to using dollar-pegged stablecoins. These uses mean stablecoins primarily act as a store of value and do not necessarily lead to the purchase of other digital currencies. Therefore, including them in Bitcoin dominance provides an inaccurate picture of Bitcoin’s actual share in the crypto asset market.
What signal does the analysis of the “Real Bitcoin Dominance” chart, after subtracting stablecoins, send to investors?
The analysis of the “Real Bitcoin Dominance” chart, after subtracting stablecoin market caps, shows a distinctly bullish picture. This indicator currently sits above the 21-week Exponential Moving Average (21-week EMA), signaling strength and a positive trend for Bitcoin. This situation can be a positive signal for investors seeking to understand market depth and Bitcoin’s growth potential compared to other digital assets, indicating that Bitcoin’s position in the real cryptocurrency market remains strong.
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