I've received quite a few questions about what Bitcoin dominance is and why it’s important to the crypto market. Today, I will share my understanding of this indicator, hoping to help you grasp it better.

Dom or BTC.D is short for Bitcoin Dominance, an index that shows Bitcoin’s market capitalization as a percentage of the total cryptocurrency market cap. In other words, it tells us how much of the total value of all cryptocurrencies is held in Bitcoin. Currently, this index is around 56%, but there have been periods when it reached 70-90%, and times when it dropped to just 30-35%.

Calculating Bitcoin dominance is quite simple. Divide Bitcoin’s market cap by the total market cap of all crypto. For example, if Bitcoin’s market cap is $9 billion and the combined altcoins are $1 billion, then DOM = 9 / (9 + 1) = 90%. This index reflects Bitcoin’s dominance over other coins.

Why is Bitcoin dominance important? Because Bitcoin is considered the “base currency” of the market. Most people wanting to participate in crypto first buy Bitcoin or USDT. When altcoins weaken, investors often move funds back into Bitcoin to preserve their capital. This creates a clear cycle that anyone involved in the market long enough will recognize.

There are four main scenarios related to DOM. First, Bitcoin rises along with the entire market — this is the best scenario, with strong market confidence, where institutions pour money into both Bitcoin and altcoins. Second, Bitcoin rises but altcoins fall — money flows into Bitcoin, and DOM increases. Third, Bitcoin falls, dragging the market down — a common scenario, where if the “king” weakens, the entire kingdom shakes. Fourth, Bitcoin moves sideways or slightly declines, while altcoins still rise — at this stage, Bitcoin is gathering strength for a new rally, which can last 1-2 years.

When Bitcoin dominance increases, pay attention to these points. If DOM rises and BTC price surges, the market is very optimistic, and investors are selling altcoins to buy Bitcoin. If DOM rises but BTC price drops, altcoins will fall even more, as many sell USDT to avoid losses. When DOM decreases and BTC rises, most altcoins also increase and grow faster than BTC. When DOM decreases and BTC drops, you need to monitor capital flows carefully, as altcoins might fall with Bitcoin but then rebound and surpass previous levels.

When DOM rises, capital from altcoins is gradually flowing into Bitcoin, making it harder for altcoins to surge strongly. However, some promising projects with good products and high evaluations can break out. At this point, you should buy and hold quality altcoins, but absolutely avoid chasing prices too high.

Looking back at history, in 2016, Bitcoin was under $100, and BTC dominance accounted for over 90% of the market because there were no serious competitors. In 2017, during the ICO boom, DOM dropped to just 35% as many people bought ETH to participate in projects. At the end of 2017, when Bitcoin hit $20,000, DOM recovered to 65%. In mid-2018, DOM fell to 33% as whales took profits and shifted into altcoins. Later, DOM rose again to 45% when BTC went from $6,000 to $9,800. At the end of 2018, Bitcoin crashed but DOM remained at 50%. In 2020, BTC went from $3,800 to $41,000 in early 2021, and DOM surged close to 74%.

Currently, Bitcoin dominance is at 56%, indicating the market is balanced between confidence in Bitcoin and interest in altcoins. To understand better, you should also monitor other indices like TOTAL, TOTAL2, DEFI, USDT.D, as they are closely related. That’s also why newcomers often struggle — lacking experience and not understanding the flow of money in the market.