BTC Dominance: An Invisible Indicator of Power Games in the Crypto World

Recently, I've often seen people say “BTC dominance is decreasing, Mainstream Token is about to To da moon”. But what exactly is this indicator talking about?

What is BTC Dominance?

Simply put: it is the percentage of Bitcoin's market capitalization in the entire crypto market.

For example, if the total crypto market is 2 trillion USD, and BTC's market cap is 1 trillion, then the dominance is 50%. Conversely, if the entire market is 3 trillion and BTC is still 1 trillion, then the dominance drops to 33% - even if BTC's price hasn't fallen.

What's so great about this thing? It can reflect the changes in market sentiment. When dominance is high, it means that funds are all in BTC; when dominance is low, it means that retail investors are starting to speculate on altcoins.

Why does Dominance change?

There are only four situations:

1. BTC rises, altcoins die: Retail investors are greedy, all in on BTC
2. BTC rises, altcoins rise even more: Market FOMO, there is too much money.
3. BTC drops, altcoins do not drop: Some are hedging risks
4. BTC drops, altcoins follow: Panic selling, but altcoins drop even more.

In actual trading, you will find that when dominance is high, the market tends to be more conservative, and everyone is waiting for news; when dominance is low, various air coins can rise by 20%, which is typical of the mid-term in a bull market.

Historical milestones are crucial

Before and After Halving: There is significant on-chain volatility, and investors will reallocate, with dominance often fluctuating sharply. Before the 2020 halving, BTC dominance was close to 70% due to institutional buying; after the halving, it began to decline, and altcoins entered a rotation market.

Bitcoin ETF Launch: This is a game-changing event. After traditional funds enter the market, the BTC siphoning effect is evident, and dominance will rise in stages. However, in the long term, as the crypto ecosystem matures, dominance will gradually decline (because DeFi, Layer 2, and Web3 applications have taken off).

How to Read Digital

• Dominance > 50%: BTC has the greatest influence, market confidence is concentrated
• Dominance 40-50%: Relatively balanced, but BTC is still the focus.
• Dominance < 40%: High risk and high return phase, altcoins are rotating vigorously
• Dominance < 30%: Extreme situation, usually occurring at the peak of extreme FOMO (the historical low point in 2017-2018 was here)

Can the price be predicted? No.

The key point: dominance is not a price indicator; it only reflects changes in market structure.

Dominance drop ≠ altcoins must rise in price. What is the reason? Because the entire crypto market may be shrinking. For example, in the 2022 bear market, dominance rose to over 75%, but BTC still fell from 69k to 16k, and altcoins had even worse declines.

Conversely, at some stages the dominance was over 20% (the peak of the bull market in 2021), but that was because the entire market was in a bubble, and although the prices of altcoins were high, most were the result of market makers lifting the prices while retail investors took the fall.

How to use this indicator

1. Assess Market Sentiment: High dominance = market is optimistic about prospects but still observing; Low dominance = greed sentiment is strong, be cautious of bubbles.
2. Configuration Reference: If you are conservative, allocate more BTC when dominance is high; if you have a strong gambling tendency, you can moderately allocate altcoins when dominance is low (but set stop loss).
3. Risk Control Tools: By combining on-chain data (whale buying and selling, exchange inflow and outflow), it is possible to more accurately determine market bottoms and tops.

Speaking plainly: dominance is an emotional thermometer, not a price oracle. Looking at it alone can lead to poor decision-making, but when combined with candlestick patterns, capital flow, and on-chain data, it can help you better understand what the market is doing.

The next time you see discussions like “BTC dominance has broken 40%, altcoins are going to da moon,” don't rush to all in. Ask yourself: Is market liquidity sufficient? Are institutions entering or exiting? This is the key to making money.