I see many people ask about BTC Dominance (DOM) what it is and why it is important for the cryptocurrency market. Today I will share my understanding of this indicator.

Simply put, BTC Dominance is the percentage of Bitcoin's market capitalization compared to the total market capitalization of all crypto. It indicates how much "power" Bitcoin holds over the entire market. For example, if Bitcoin has a market cap of $9 billion and all altcoins combined only have $1 billion, then BTC Dominance will be 90%.

Bitcoin is considered the "king" of crypto, and people usually have to buy Bitcoin or USDT to participate in the market. That’s why this index greatly influences other altcoins. Currently, BTC dominance is around 57%, showing Bitcoin still maintains an overwhelming position but not entirely dominant.

In the market, there are usually four main scenarios. First, Bitcoin rises along with the market – this is the ideal situation everyone hopes for. Second, Bitcoin rises but altcoins fall, as funds flow into Bitcoin leaving other coins behind. Third, Bitcoin drops causing the whole market to crash – a common situation because when the king weakens, the entire kingdom shakes. Fourth, Bitcoin moves sideways or slightly down while altcoins rise, indicating Bitcoin is regaining strength and preparing for the next rally.

When BTC dominance increases, it has different implications depending on Bitcoin’s price. If DOM rises and Bitcoin’s price also surges, the market is confident, and investors sell altcoins to buy Bitcoin. If DOM rises but Bitcoin’s price drops, altcoins will fall even more, and many choose the safer option of selling into USDT. Conversely, when DOM decreases and Bitcoin rises, most altcoins tend to increase and often outperform Bitcoin. When DOM drops and Bitcoin also declines, you need to carefully observe capital flows.

Looking back at history, in 2016 Bitcoin was just under $100 and DOM exceeded 90%. In 2017, a turning point occurred when ICOs exploded, and DOM dropped to only 35% as Ethereum reached 30% to support ICO participation. At the end of 2017, DOM recovered to 65% when Bitcoin hit $20,000. In early 2018, DOM fell to 33% as whales took profits and shifted into altcoins. Afterwards, it fluctuated around 45-50% throughout 2018. By March 2020, Bitcoin crashed hard but then recovered strongly, from $3,800 to $41,000 by late 2020 and early 2021, when DOM surged close to 74%.

It is crucial to always monitor BTC Dominance if you want to catch market trends. Additionally, you should also consider other indicators like TOTAL, TOTAL2, DEFI, USDT.D because they provide a comprehensive picture of capital flows. Practical experience and a good sense of money flow are necessary to effectively use these indicators, which is why many beginners often suffer heavy losses.