As Bitcoin receives widespread attention from both governments and corporations, some may wonder, 'Should I buy some too?' Today, we will introduce two basic concepts you should understand before purchasing Bitcoin.
What is Bitcoin dominance?
Bitcoin dominance refers to the market cap proportion of Bitcoin in the entire cryptocurrency market. For example, if the total market cap of the cryptocurrency market is 14 trillion RMB, and Bitcoin's market cap is 7 trillion RMB, then Bitcoin dominance is 50%.
Why is Bitcoin dominance important?
Because Bitcoin dominance affects altcoins. Specifically:
If Bitcoin rises by 4%, but altcoins only rise by an average of 1–2%, then Bitcoin dominance will increase.
Conversely, if Bitcoin rises by 1%, while altcoins rise by 4–5%, Bitcoin dominance will decrease.
This is why when Bitcoin dominance rises, funds mainly flow into Bitcoin, which is often referred to as 'Bitcoin season'. When dominance falls, it indicates that altcoins are gaining more attention, signaling the arrival of 'altcoin season'.
Typically, when Bitcoin dominance exceeds 60%, it is considered Bitcoin season. During this period, investing in Bitcoin may yield better returns. The typical cryptocurrency investment cycle is as follows: Bitcoin season → Mainstream coin season → Altcoin season.
As of June, Bitcoin dominance has remained around 63–64%, so the bull market many investors are expecting may take a little longer. Some people overly rely on Bitcoin dominance, but it should be viewed as a reference indicator rather than an absolute basis.
What is Bitcoin halving?
Bitcoin's network halves mining rewards approximately every four years. The purpose is to slow down the rate of supply increase, control inflation, and maintain scarcity. Before 2024, miners received 6.25 Bitcoins per block, but now it is only 3.125 Bitcoins.
Why is halving important?
Historically, Bitcoin has typically begun to see price increases within 3–6 months after a halving event.
As mining rewards decrease, market supply naturally tightens, and coupled with investor psychology, prices tend to rise. In past halving events, Bitcoin prices have soared up to 90 times, which is why many investors are optimistic about it.
Why might this halving have a smaller impact?
Many people are looking forward to the halving in 2024, but the results may not meet expectations. The reasons are as follows:
Turning to institutional investors
In the past, retail investors dominated the market, while now it is dominated by ETFs and large institutions.
The impact of the halving is relatively small
Early halvings significantly reduced mining rewards, while this time the reduction is relatively small.
It is well known that Bitcoin halving drives price increases. Since this is a scheduled event, its effects are often reflected in the price in advance.
Although there are many indicators to analyze Bitcoin prices, Bitcoin dominance and halving are the two most fundamental and important indicators.
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