Summary

The Bitcoin Leading Index, or "BTC Leading Index," is the ratio of the market capitalization of Bitcoin to the rest of the cryptocurrency market. Some cryptocurrency investors and traders use the Bitcoin Leading Index as a guide to adjust their trading strategies and portfolio structures.

Introduction

There are thousands of altcoins on the market, but Bitcoin, the “originator” of cryptocurrency, still ranks first in the market capitalization of digital assets. By observing the dynamics of Bitcoin's share of the overall cryptocurrency market, traders see certain repeating patterns in market movements. Some people have begun to use the BTC leading index as a guide for trading behavior, or even as a "wind vane" to gain insight into the current overall market trend.

BTC leading index and market capitalization

Simply put, market capitalization Refers to the total value of a certain circulating asset. Bitcoin market capitalization is calculated by multiplying the current price of Bitcoin by the current number of BTC mined.

The Bitcoin leading index can be calculated by the following formula:

Bitcoin leading index = Bitcoin market capitalization / total market capitalization of the entire cryptocurrency market

Factors affecting BTC's leading index

Changing trends

Before the explosion of various altcoins, the Bitcoin leading index usually hovered above 90%. As altcoins have attracted more attention from users and investors, attention that was originally entirely focused on Bitcoin began to turn to other assets with large price fluctuations and projects with novel use cases.

Bitcoin was originally created to change the way value is transferred, but the cryptocurrency project has evolved into much more than that. Unlike Bitcoin, many altcoins go beyond a single transfer function and are involved in various fields, including games, art, and decentralized financial services. Judging from current trends, projects surrounding specific types of cryptocurrencies will gain more attention and attract more transactions. For example, the emergence of NFT has caused the BTC leading index to decline, while NFT-related tokens have gradually begun to gain attention.

Bitcoin has long established a "solid" lead as a cryptocurrency asset. Traders are turning their attention to emerging altcoins with more violent price fluctuations in order to seize profit opportunities. This has also affected the Bitcoin leading index, causing funds to gradually flow to riskier assets. In this case, the sector that the altcoin represents is clearly not as important as the profit potential itself.

Bull or Bear

Stablecoins have generally grown in popularity over the past few years, a trend that has put continued pressure on Bitcoin’s leading indexes. Specifically, during bear markets or market volatility, stablecoins are often a means of keeping cryptocurrency investors’ funds safe when prices fall. Stablecoins are altcoins that aim to maintain the same value as an asset with a stable price, such as a fiat currency or commodity. Cryptocurrency investors and traders often use stablecoins to lock in profits without having to exchange cryptocurrencies for fiat currency. When funds flow from the BTC market to stablecoins, the Bitcoin Leading Index declines.

In a bull market, the opposite is true. Rising markets will encourage traders to invest stablecoins into more volatile assets such as Bitcoin, thereby gaining more trading opportunities. However, daring traders will choose the riskier option of injecting liquidity into altcoins that are more volatile than Bitcoin. In this way, the overall impact of favorable trends on the Bitcoin Leading Index depends entirely on the market environment.

Influx into the cryptocurrency market through stablecoins

Compared with fiat currencies, using stablecoins allows you to easily obtain a variety of cryptocurrencies. The trading platform for exchanging fiat currencies for cryptocurrencies is called a "gateway trading platform", so the choices are relatively limited and only provide the more popular cryptocurrencies and stablecoins. Cryptocurrency exchange trading platforms provide a comprehensive range of cryptocurrency options that can be traded with selected stablecoins. Therefore, traders looking to trade specific cryptocurrencies can enter the market through stablecoins. There is no doubt that if a large amount of new money floods into the market through stablecoins rather than Bitcoin, the total value of the cryptocurrency market will grow, causing BTC to lead the index to decline.

Emerging currencies are emerging

There is another In this case, the emerging tokens that entered the market quickly became popular, causing the BTC leading index to decline. Remember, Bitcoin is “antagonistic” to every other cryptocurrency in the market. Therefore, the emergence of multiple popular altcoins at the same time will affect the Bitcoin leading index. However, these altcoins will lose popularity as soon as the hype subsides. If this happens and funds move from altcoins back to BTC, or exit the cryptocurrency market altogether, the BTC leading index will rise again.

Use BTC Leading Index in Trading

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Wyckoff method

The Wyckoff Method is a set of principles developed in the early 1930s for traders and investors in traditional financial markets. The laws of cause and effect and other principles also apply to situations where BTC leads the index to seek profit opportunities.

Many traders and investors use the Wyckoff method to identify market trends, estimate the possibility of trend reversal and trade timing. According to Wyckoff theory, trading behavior is divided into four stages: accumulation, price increase, distribution and price reduction. For traders to rely on market timing to make informed trading decisions, determining the direction and timing of capital flows is crucial.

Traders and investors usually use this method to select stronger trends and conduct diversified investments. Here are a few situations where Wyckoff's method comes into play.

Using the BTC Leading Index to Determine Altcoin Peak Season

With the increasing number of altcoins in the market, it is not surprising that the Bitcoin leading index has declined. In recent years, some altcoins have become so popular that the total market capitalization of all altcoins briefly surpassed that of Bitcoin. This period when altcoins are steadily ahead of Bitcoin is called “altcoin season” or “alt season.” Following the principles of the Wyckoff Method, the transfer of funds from Bitcoin to altcoins is cyclical.

Since altcoins typically perform better during peak seasons, Bitcoin’s leading index will weaken during this phase of the market cycle. Therefore, if one trades both Bitcoin and altcoins, one can track the Bitcoin leading index and adjust the portfolio accordingly.

Using both the BTC leading index and the current price of Bitcoin

Someone makes effective trading decisions by monitoring the Bitcoin price and leading indices simultaneously. Although the two are not iron-clad laws, the potential results obtained by combining the BTC price and the leading index are somewhat prophetic.

If the BTC price and the leading index rise at the same time, it releases a signal that the Bitcoin bull market may be coming.

BTC prices rose, but the leading index fell, indicating the possibility of entering an altcoin bull market.

The price of BTC fell while the leading index rose, indicating that the altcoin bear market may be entering.

The simultaneous decline of BTC price and leading index means that the entire cryptocurrency market may enter a bear market.

Although these two factors do not clearly predict a bull market or a bear market, past observational data shows that there is a certain correlation.

Summary

BTC Leading Index is a tool that helps reveal the changing patterns of market cycles. Some traders use the index to adjust their trading strategies, while others use it to manage diversified investment portfolios. Please note that the BTC Leading Index is not a guarantee of the performance of Bitcoin or other cryptocurrencies and is only used as a guide to help traders plan their trading methods.