I often receive questions about what bitcoin dominance is and why it’s important for the crypto market. Today, I want to share a brief overview of this indicator with you.

BTC Dominance (btc.d or DOM) basically refers to Bitcoin’s market share compared to the entire cryptocurrency market. The calculation is simple — it’s the percentage of Bitcoin’s market capitalization out of the total market capitalization. This index shows Bitcoin’s dominance and its overwhelming presence compared to other altcoins. There are times when it reaches 60-70%, but currently it fluctuates around 57-58%.

The calculation is also very easy to understand. If Bitcoin’s market cap is $9 billion and the total altcoin market cap is $1 billion, then BTC Dominance = 9 / (9 + 1) = 90%. The higher Bitcoin’s market cap relative to other altcoins, the higher the dominance ratio.

Why is bitcoin dominance important? Because Bitcoin is considered the base currency of the market. Most people wanting to participate in crypto must go through Bitcoin or USDT first. When altcoins drop sharply, many investors will shift back to Bitcoin to preserve their capital. This creates four main scenarios in the market:

First, Bitcoin rises along with the entire market. This is the ideal scenario when confidence increases and institutions pour money into both Bitcoin and altcoins.

Second, Bitcoin rises but altcoins fall. At this point, capital flows strongly into Bitcoin, pulling out of altcoins.

Third, Bitcoin falls along with the entire market. This is a common scenario because when the king is sick, the whole kingdom wavers.

Fourth, Bitcoin moves sideways or slightly declines, while altcoins surge. This indicates Bitcoin is gathering strength for the next rally.

What happens when BTC Dominance increases? If DOM rises and Bitcoin’s price surges, the market will have strong confidence. Investors will sell altcoins to buy Bitcoin and wait for profits, or more institutions will inject capital.

If DOM increases but Bitcoin’s price drops, altcoins will fall even harder. Many investors will sell to USDT to avoid heavy losses.

When DOM decreases and Bitcoin’s price rises, most altcoins will outperform Bitcoin. This is a good opportunity for promising projects to break out. At this point, you should buy and hold quality altcoins with strong products and good reviews, ideally not selling too high.

Looking back at history, in 2016 when Bitcoin was below $100, BTC Dominance exceeded 90%. In 2017, during the ICO boom, what is bitcoin dominance became a question for many because it dropped to 35% as Ethereum reached 30% due to ETH’s demand for ICO participation. At the end of 2017, when Bitcoin hit $20,000, DOM recovered above 65%. In mid-January 2018, DOM hit a low of 33% as whales took profits and shifted to altcoins. From April to July 2018, the ratio recovered to 45% thanks to positive news from the SEC. At the end of 2018, Bitcoin plummeted but DOM stayed around 50%. By March 2020, Bitcoin crashed from $3,800 but then recovered, reaching $41,000 by late 2020 and early 2021, pushing DOM close to 74%.

Currently, what is bitcoin dominance remains an essential index. However, you also need to consider TOTAL, TOTAL2, DEFI, USDT.D, and many other aspects. Practical experience and a sense of capital flow are necessary to keep up with the market. That’s why many newcomers often get wrecked in crypto.