Bitcoin dominance refers to the extent to which Bitcoin's market capitalization represents the total market capitalization of the entire cryptocurrency market. It is calculated by dividing the market capitalization of Bitcoin by the sum of market capitalizations of all cryptocurrencies, and then multiplying the result by 100 to obtain a percentage. Bitcoin dominance is a widely followed metric in the cryptocurrency industry as it provides insights into Bitcoin's relevance and influence compared to other cryptocurrencies.

The concept of Bitcoin dominance stems from the fact that Bitcoin was the first and remains the most well-known and widely adopted cryptocurrency. It has a longer history, higher liquidity, and greater acceptance among merchants and institutional investors compared to other cryptocurrencies. As a result, Bitcoin often serves as a reference point for the broader cryptocurrency market.

Bitcoin dominance has practical and psychological implications. Practically, it helps investors gauge overall crypto market health and dynamics. Higher dominance suggests more capital flowing into Bitcoin, potentially reducing liquidity for altcoins. Lower dominance indicates a more competitive, diverse market.

Psychologically, Bitcoin dominance can influence investor sentiment and market behavior. When Bitcoin dominance is high, it can create a sense of stability and confidence among market participants, as Bitcoin is often considered a benchmark for the industry. Conversely, a decline in Bitcoin dominance may lead to increased speculation, with investors searching for the "next Bitcoin" and potentially higher volatility in the market.

Bitcoin dominance is not a static figure and can vary over time. Market conditions, investor sentiment, technological advancements, and the emergence of new cryptocurrencies can all impact Bitcoin dominance. For example, Bitcoin dominance declined substantially during the 2017 ICO boom but later rebounded as the market matured.