I often get asked what bitcoin dominance is and why it’s so important. Today I will break down this concept so you can understand it better.

Bitcoin dominance, also called BTC.D or DOM, simply refers to Bitcoin’s market share compared to the entire crypto market. Specifically, it’s the percentage of Bitcoin’s market capitalization out of the total cryptocurrency market capitalization. For example, if Bitcoin’s market cap is $9 billion and all altcoins combined are $1 billion, then Bitcoin dominance will be 90%. This index shows Bitcoin’s absolute supremacy over the rest.

Historically, bitcoin dominance can change a lot. In 2016, when Bitcoin was under $100, it accounted for over 90% of the market cap. In 2017, during the ICO boom, bitcoin dominance dropped to just 35% as many new projects raised funds. Ethereum then reached 30% because of the skyrocketing demand to buy ETH for ICO participation. Later, at the end of 2017, when Bitcoin hit $20,000, DOM recovered to 65%. In mid-2018, it dipped to a low of 33%, then rebounded to 45%. By the end of 2018, it stayed around 50%, and in 2020-2021, as Bitcoin rose from $3,800 to $41,000, bitcoin dominance reached nearly 74%. Currently, it fluctuates around 57%.

Why is bitcoin dominance important? Because Bitcoin is considered the core currency of the market. Most people wanting to participate in crypto first buy Bitcoin or USDT, and when altcoins drop sharply, many shift into Bitcoin to preserve their capital.

There are four main market scenarios. First, Bitcoin rises along with the entire market — this is the best scenario, indicating strong market confidence. Second, Bitcoin rises but altcoins fall — funds flow into Bitcoin and out of altcoins. Third, Bitcoin drops along with the market — the default scenario, because when the king is sick, the whole court wavers. Fourth, Bitcoin stays flat or declines while altcoins rise — this is when Bitcoin regains strength and prepares for a new altcoin rally, which can last 1-2 years.

When BTC dominance rises sharply and Bitcoin’s price also increases, it shows strong market confidence, with investors selling altcoins to buy Bitcoin. If DOM rises but Bitcoin’s price drops, altcoins will fall even harder, and many will sell to USDT to avoid heavy losses. In this case, good altcoins will find it hard to grow, but some promising projects will still prove their value. The best strategy is to buy and hold quality altcoins with real products, and importantly, avoid buying at too high a price.

When DOM decreases and Bitcoin’s price rises, most altcoins will also increase, often even more than Bitcoin. If DOM drops while Bitcoin declines, you need to carefully monitor capital flows because altcoins may fall sharply before rebounding higher than before the drop.

Therefore, if you want to catch market trends, you must always watch the BTC dominance index. Additionally, consider other indicators like TOTAL, TOTAL2, DEFI, USDT.D, as they also significantly influence capital flows. That’s also why beginners often get wrecked — they only look at price increases or decreases and forget to monitor these indicators.