I see many newcomers to crypto often ask what bitcoin dominance is and why it’s important. Today I will share my understanding of this indicator and how it affects the entire market.

Simply put, bitcoin dominance (DOM or btc.d) is the market capitalization ratio of Bitcoin compared to the total market capitalization of all crypto. For example, if Bitcoin has a market cap of 9 billion USD and all altcoins combined only 1 billion USD, what is bitcoin dominance? Simply: 9 divided by 10 equals 90%. This shows Bitcoin’s dominance over the rest of the market.

In the past, around 2016, Bitcoin accounted for over 90% of the market cap. But by mid-2017, when ICOs exploded, what was bitcoin dominance then? It dropped to only 35% because people poured money into Ethereum and ICO tokens. Then at the end of 2017, when Bitcoin reached $20,000, DOM recovered to over 65%. After that, from early 2018 onward, DOM dropped sharply to 33% as people took profits from Bitcoin to switch into altcoins.

I see many people don’t understand why bitcoin dominance is so important. The reason is that Bitcoin is considered the “base currency” of the market. Most people have to buy Bitcoin or USDT before entering altcoins. When Bitcoin is strong, DOM increases, and capital flows into Bitcoin. When Bitcoin weakens, DOM decreases, and capital shifts into altcoins.

There are four main scenarios in the market. First, Bitcoin rises and the entire market rises — this is the best scenario, showing strong market confidence. Second, Bitcoin rises but altcoins fall — capital flows into Bitcoin from altcoins or outside the market. Third, Bitcoin falls and drags the market down — this is the most common scenario, like the king falling ill and the whole court wobbles. Fourth, Bitcoin moves sideways or slightly down but altcoins rise — at this point, Bitcoin is gathering strength for a new rally, and this scenario can last 1-2 years.

What I notice is that when bitcoin dominance rises sharply along with Bitcoin’s price increase, market confidence is truly strong. Traders sell altcoins to buy Bitcoin or wait for opportunities. Conversely, when DOM rises but Bitcoin’s price drops, altcoins tend to fall even harder, so many choose to sell to USDT to preserve capital. When DOM decreases and Bitcoin rises, most altcoins tend to outperform Bitcoin — this is the altseason phase. And when DOM drops and Bitcoin also declines, you need to monitor capital flows carefully, because altcoins might fall but then rebound higher than before.

An important point is that when bitcoin dominance increases, capital from altcoins is gradually pulled into Bitcoin. At this time, altcoins find it hard to surge strongly, but there are still potential projects that prove their value and have breakout opportunities. So if you want to seize opportunities, buy and hold quality altcoins with real products, and ideally avoid buying at too high a price.

I clearly remember 2020, when Bitcoin’s price sharply dropped to $3,800 and then recovered, eventually reaching $41,000 by the end of the year. At that time, DOM surged close to 74%. But besides bitcoin dominance, you also need to pay attention to other indicators like TOTAL, TOTAL2, DEFI, USDT.D — this requires practical experience and feeling the flow of money to understand. Therefore, you must always keep an eye on what bitcoin dominance is and how it’s moving to catch the market trend. That’s also why many beginners struggle at first when entering crypto.