I've seen many people ask what dominance is, and why it matters to the crypto market. Today, I’ll share my understanding of this indicator, which should help you get better direction when investing.

Dominance, also called btc.d, DOM, is a technical term that indicates the dominance ratio of Bitcoin compared with the entire cryptocurrency market. In other words, it is the percentage of market cap that Bitcoin accounts for out of the total market cap of the entire crypto market. This index shows Bitcoin’s level of advantage over other altcoins. There are times when it reaches 60-70%, but now it fluctuates around 50-55%.

The calculation is also simple. For example, if Bitcoin has a market cap of 9 billion USD, and all altcoins together total 1 billion USD, then what is dominance? You take 9 divided by (9 + 1) to get 90%. The higher Bitcoin’s market cap is compared to altcoins, the higher this percentage is.

Bitcoin is considered the base coin of the market. Most people who want to enter the crypto market have to buy Bitcoin or USDT first. When altcoins drop sharply, many people switch to Bitcoin to preserve their capital. That’s why dominance is important.

On the market, there are 4 main scenarios you need to pay attention to. First, Bitcoin rises and the entire market also rises—this is the best scenario, with strong market confidence, and big players pouring money into both Bitcoin and altcoins. Second, Bitcoin rises but altcoins fall—the flow of funds from altcoins runs into Bitcoin. Third, Bitcoin falls and that pulls the whole market down—this is the scenario you usually see, because when the king is sick, the whole court will be shaken. Fourth, Bitcoin moves sideways or falls slightly, while altcoins move sideways or rise—at this point, Bitcoin gathers strength and prepares for the next price upswing for altcoins.

When dominance increases, capital from altcoins is gradually withdrawn and flows into Bitcoin. At this time, altcoins are difficult to surge strongly, but there are still some potential projects that prove their value and break out strongly. If DOM increases while Bitcoin’s price increases, the market is optimistic, and traders sell altcoins to buy Bitcoin. If DOM increases but Bitcoin falls, altcoins will drop even more heavily, and many people choose to sell out into USDT to avoid losses. When DOM decreases and Bitcoin increases, most altcoins also increase—sometimes even more than Bitcoin. When DOM decreases and Bitcoin decreases, you need to observe the capital flow; altcoins may fall along first, and then rebound higher than before.

Looking back at history, in 2016 Bitcoin was still under 100 USD. At that time, BTC accounted for more than 90% of the market cap, and there was no Ethereum yet. In 2017, it was a boom period: ICOs flourished in the middle of the year, and dominance fell to 35%, the lowest point at that time, because everyone bought ETH to participate in ICOs. In late 2017, when Bitcoin rose to 20000 USD, DOM recovered to above 65%, the highest level up to that point. In mid-January 2018, DOM dropped sharply to 33% as whales took profits and shifted into altcoins. From April to July 2018, DOM rose back to 45%. Then in the end of 2018, Bitcoin crashed, but DOM still stayed around 50%. In March 2020, Bitcoin fell sharply and then recovered—from 3800 USD up to 41000 USD in late 2020 to early 2021—DOM jumped to nearly 74%.

You must always pay attention to the dominance index if you want to keep up with market trends. But besides btc.d, you also need to watch TOTAL, TOTAL2, DEFI, USDT.D. You need hands-on experience in real trading and a feel for capital flow. That’s why beginners often end up getting overwhelmed. I recommend that when DOM increases and Bitcoin’s price also increases, you should be cautious with altcoins—but you can still hold quality projects with real products, and you should not buy too high. Opportunities are always there; you just need to know how to read market signals.