Cryptocurrencies are an increasingly prevalent part of the global financial ecosystem, with new projects and coins frequently being introduced. To navigate this complex landscape, traders and investors utilize various tools and metrics. Among these, one often overlooked but invaluable resource is the dominance chart.

What Are Dominance Charts?

Dominance charts represent the percentage of the total cryptocurrency market capitalization contributed by the top cryptocurrencies. Bitcoin, being the first and most valuable cryptocurrency, has its own dominance chart—known as Bitcoin Dominance (BTC.D)—which demonstrates its market share compared to all other cryptocurrencies combined. Similarly, there are dominance charts for Ethereum (ETH.D), Binance Coin (BNB.D), and others.

In Tradingview charts, for example, you can simply search for dominance charts using the [COIN].D format.  Of course, this chart is usually available for coins with higher cap.

The Significance of Dominance Charts

Dominance charts provide a snapshot of the relative strength of a particular cryptocurrency in comparison to the broader market. They allow traders and investors to gauge the flow of capital within the crypto markets—money moving into altcoins versus money investing in Bitcoin, for instance.

Market Sentiment: Bitcoin dominance can be used as an indicator of market sentiment. When Bitcoin dominance is high, it indicates that investors prefer to hold Bitcoin over altcoins. Conversely, when Bitcoin dominance decreases, it signals that investors are becoming more confident in altcoins.

Trends and Cycles: Dominance charts can also be utilized to identify trends and cycles in the crypto market. For instance, altcoin seasons—a period when altcoins significantly outperform Bitcoin—are often characterized by a drop in Bitcoin dominance.

Risk Management: Bitcoin, often considered a “safe haven” within the crypto world due to its size and history, tends to have an inverse relationship with risk tolerance in the market. A rising Bitcoin dominance may signal a more risk-averse environment, while a decreasing dominance could indicate increased risk-taking.

The Role of USDT Dominance in Cryptocurrency Markets

Tether (USDT) is a unique player in the cryptocurrency landscape. It’s a stablecoin, meaning it’s pegged to a reserve of assets—in this case, the US Dollar—to maintain a stable value. Due to its stability, USDT serves as a reliable ‘port in a storm’ during periods of high volatility, and it is frequently used as a gateway between fiat and cryptocurrencies. As a result, the Tether dominance chart, denoted as USDT.D, carries its own significance in market analysis.

USDT dominance represents Tether’s percentage of the total cryptocurrency market capitalization. Unlike Bitcoin or Ethereum dominance, a high USDT dominance doesn’t represent bullish sentiment for USDT—it always hovers around $1 due to its stablecoin nature. Instead, it’s an indication of the overall market sentiment and behavior.

Risk Aversion: A rise in USDT dominance typically signifies an increase in risk aversion within the crypto market. Investors may be moving their assets into USDT to protect against market volatility or potential downturns, effectively ‘parking’ their capital in a safe spot until they believe the time is right to reenter the market.

Market Liquidity: The USDT dominance can also be seen as a proxy for liquidity in the market. Given that Tether serves as the main trading pair for many altcoins, its dominance can reflect the availability of liquid capital in the market. A high USDT dominance might suggest a high level of liquidity ready to flow into other cryptocurrencies.

How to Use Dominance Charts

Just like price charts, dominance charts can be analyzed using technical analysis techniques. Trendlines, support and resistance levels, moving averages, and various technical indicators can be used on dominance charts. For instance, a resistance breakout on the Bitcoin dominance chart may imply a bullish phase for Bitcoin.

On our Discord Server, we are currently covering technical analysis for the BTC.D and USDT.D dominance charts.

Caveats

Despite their utility, dominance charts should not be used in isolation. They’re most effective when combined with other market data and analysis methods. Cryptocurrency is a volatile and complex market, and many factors can influence price action beyond dominance percentages.

Conclusion

Dominance charts serve as a critical tool in the arsenal of a cryptocurrency trader or investor. They provide valuable insight into market sentiment, trends, and risk levels, enabling more informed decision-making. However, like all tools, they’re not infallible and should be used as part of a diversified analytical strategy. As always in the crypto world, continuous learning, careful analysis, and risk management are the keys to success.