I see many of you are still confused about what BTC Dominance is and why it’s important for the crypto market. Today, I want to share some practical insights about this indicator.

BTC Dominance, or DOM, is the term used to describe Bitcoin’s market capitalization ratio compared to the total market capitalization of all cryptocurrencies. It reflects Bitcoin’s dominance over other altcoins. In the early days, Bitcoin accounted for over 90% of the market cap, but now it fluctuates around 57% as of now.

The calculation is also simple. For example, if Bitcoin’s market cap is $9 billion and all other altcoins combined are only $1 billion, then BTC dominance will be 9 divided by 10, which equals 90%. The more money flows into Bitcoin, the higher this index becomes.

Why is this important? Because Bitcoin is the “base currency” of the market. Most people need to buy Bitcoin or USDT to enter the market, and when altcoins drop sharply, many will transfer their funds back into Bitcoin to preserve their assets.

The crypto market usually follows four main scenarios. First, Bitcoin’s price rises, pulling the entire market up — this is the best situation when market confidence is strong. Second, Bitcoin increases but altcoins decrease — funds are only flowing into Bitcoin. Third, Bitcoin drops, dragging the market down — this often happens because when the king is sick, the entire kingdom shakes. Fourth, Bitcoin moves sideways or declines, but altcoins increase — at this point, Bitcoin is gaining strength and a new altcoin rally may begin.

When BTC dominance rises, capital from altcoins is gradually pulled into Bitcoin. Altcoins are less likely to surge strongly at this time, but projects with real potential still have a chance to break out. If you want to buy altcoins now, choose projects with good products and avoid chasing prices too high.

Looking back at history, in 2016, Bitcoin had no competition, and DOM reached 90%. In 2017, during the ICO boom, DOM dropped to only 35%, the lowest at that time. By the end of 2017, when Bitcoin hit $20,000, DOM recovered to 65%. In mid-2018, it dropped to 33% as whales took profits, then rebounded to 45%. At the end of 2018, Bitcoin crashed hard but DOM remained around 50%. In early 2021, as Bitcoin rose from $3,800 to $41,000, DOM reached 74%.

Currently, BTC dominance is at 57%, indicating the market is balanced between Bitcoin and altcoins. You need to monitor this indicator if you want to catch market trends. Additionally, you should also look at TOTAL, TOTAL2, and other metrics to better understand capital flows. That’s why newcomers often find it easier to lose money.