Many people ask me what DOM is? How does this index affect Crypto? Today I will have a brief article explaining for you to understand the meaning of this index!
BTC Dominance (btc.d or DOM) is a technical term understood as the dominance ratio of Bitcoin compared to the rest, specifically the percentage of market capitalization that Bitcoin occupies in the total market capitalization of the entire cryptocurrency market. This ratio reflects the dominance level of Bitcoin over other altcoins in the market. At times it has accounted for 60-70%, currently fluctuating around 50-55%.
The BTC Dominance ratio is calculated by the market capitalization of Bitcoin compared to the total market capitalization of the entire cryptocurrency market worldwide. Therefore, if the market capitalization of Bitcoin is higher compared to other altcoins, the BTC Dominance ratio will be higher. For example: at one time, the market capitalization of Bitcoin reached $9 billion, while all other altcoins combined only reached $1 billion, we have the following calculation formula:
BTC Dominance = 9 / (9 + 1) = 90%.
Bitcoin is considered the 'original coin' of the cryptocurrency market. Most people must buy Bitcoin or USDT if they want to participate in the cryptocurrency market as well as convert from altcoin to Bitcoin to preserve capital when Altcoins drop sharply. In the cryptocurrency market, there are usually 4 scenarios that occur, you should pay attention to this analysis to guide your investment:
1. The price of Bitcoin rises, pulling the entire market up. This is the best scenario that everyone wants to see, meaning market confidence is increasing, and big players are pouring money into Bitcoin and altcoins.
2. The price of Bitcoin increases but altcoins decrease. This is the scenario at the time I am writing this article in April 2019, when the capital flow from altcoins or from outside the market runs into and only to buy Bitcoin.
3. The price of Bitcoin decreases, dragging the market down. This is a scenario you often see, it can be said to be a default because when the king is sick, the entire court will shake.
4. The price of Bitcoin is stabilizing or decreasing, while the price of altcoins is also stabilizing or increasing. At this point, Bitcoin is stabilizing to gather strength and will start a new price increase for altcoins. It can last for 1-2 years, but I think it will only be 1 year.
Therefore, you must always pay attention to the BTC Dominance index if you want to catch the market trend.
What should we do when BTC Dominance increases?
As mentioned above, we will explain again:
- When DOM increases and the price of Bitcoin increases sharply, it strengthens market confidence again, traders and investors sell altcoins to buy Bitcoin and wait to profit, or more organizations will invest heavily.
- When DOM increases and the price of Bitcoin decreases, altcoins will drop even more sharply, so to avoid heavy losses, many investors choose to sell for USDT.
- When Dominance decreases, and the price of BTC increases, most altcoins also rise, and grow stronger than BTC.
- When Dominance decreases, and the price of BTC decreases, we must observe the flow of capital in the market. Initially, altcoins may drop sharply along with BTC, but later they bounce back and rise higher before dropping.
When BTC Dominance increases, the capital from altcoins is gradually withdrawn and poured into Bitcoin. At this time, altcoins find it hard to increase sharply, but there are still potential projects that will grow strongly, proving their potential, and it is even an opportunity for them to break out more than BTC (but it is really very hard).
Therefore, at this time, you should buy and hold quality-rated altcoins with good products, and ideally, do not chase prices too high.
Important milestones of BTC Dominance
- In 2016: Bitcoin was below $100, at that time there was not even Ethereum, when BTC accounted for over 90% of market capitalization.
- In 2017, there was a strong breakout for BTC, and from around mid-2017, ICO fundraising activities exploded, at one point the BTC Dominance index dropped to about 35%, the lowest at that time. At that time, the ratio of Ethereum reached 30% due to the strong demand for buying ETH to participate in ICOs.
- At the end of 2017, BTC Dominance recovered to above 65%, the highest level until April 2019. The reason is very clear when BTC peaked at $20,000.
- In mid-January 2018, BTC Dominance began to decrease sharply, at that time the percentage of Bitcoin was at its lowest around 33%. This was due to whales taking profits, moving to altcoins, and then selling altcoins, creating a sharp decline in the history of Bitcoin and altcoins.
- From April 2018 to July 2018, the BTC ratio increased again, reaching nearly 45%, due to many extremely positive news from the SEC as well as a sharp increase from $6,000 to $9,800.
- At the end of 2018: BTC witnessed a slow and miserable decline, gradually discouraging the will of small investors, but BTC Dominance still maintained at around 50%.
- In April 2019, the BTC Dominance index was at 50%-55%. The reason could be that investors are gradually regaining market confidence.
- In March 2020, the price of BTC plummeted sharply, then recovered, and we witnessed BTC rise from $3,800 to $41,000 by the end of 2020, beginning of 2021, causing DOM to spike to nearly 74%.
Additionally, we must consider many other aspects besides btc.d, which are the TOTAL and TOTAL2 indices, as well as the DEFI, USDT.D indices. This requires practical experience and a sense of the flow of money. That's why beginners often face difficulties!
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