What is BTC Dominance (BTC.D)? Bitcoin Dominance Overview
What is BTC Dominance? How to trade with BTC Dominance? What are the limitations of BTC.D? Learn all about Bitcoin Dominance here!
As an important indicator and always associated with price & market capitalization, BTC Dominance (or Bitcoin Dominance) is used by many traders to make decisions when investing in any coin/token. In today’s article, I will give you all the details about BTC Dominance including:
- What is BTC Dominance? Meaning of BTC.D
- How to apply BTC Dominance for effective trading.
- How to determine the trend of Bitcoin Dominance?
- Limitations and Future Potential of BTC Dominance.
What is BTC Dominance?
BTC Dominance is the percentage of capitalization that Bitcoin occupies of the total capitalization of the entire Cryptocurrency market.
For example, BTC Dominance is at 60%, this can be interpreted as BTC capitalization is 60% of total market cap and Altcoins is 40% of total market cap. Altcoin here refers to all non-Bitcoin (BTC) coins/tokens.
BTC Dominance can also be written as: BTC.D, Bitcoin Dominance.
Users can easily access the BTC Dominance index when searching on Tradingview, it is an important indicator used by many Holders and Traders in their trading strategies.
Meaning of BTC Dominance
As defined, BTC Dominance shows how much users are pouring into BTC relative to the total amount pouring into the market.
- If this index is increasing, it means that the money flow from Altcoins is being sucked back into BTC, Altcoin investors need to be careful, because at this time, Altcoin price is likely to decrease.
- On the contrary, if this index falls, it is very likely that we will see an Altcoin season – a time when Altcoins increase in price very strongly.
Why have problem? It is due to the peculiarities of the circulation of money in the market.
How Bitcoin & Money Flow in Crypto
Crypto market has its own characteristics, the money flow in this market does not pour evenly into the market or into each project, but tends to pour from the top down.
BTC => Top Altcoin => Altcoin Mid cap and Low cap => Cash => BTC…
The flow of money in Crypto tends to flow from the top down.
Of course, this is a general trend, in the market there will still be exceptions such as: affected by news, events, fundamental analysis factors, …
For example: Projects supported by good fundamental analysis, these Coins & Tokens all have an upward trend in the long term, typically Chainlink (LINK).
Or conversely, projects whose fundamental analysis is not good for long-term holding will all have a long-term downtrend, whether the general trend is up or down, which is typical of the case. This is EOS (EOS) – a project that was very “HOT” in 2018.
So how are we going to use this BTC Dominance to make as much profit as possible from the market? Below I will present the details.
How to trade with BTC Dominance?
By combining BTC price trend analysis and BTC Dominance, we will get some trading strategies on a case-by-case basis, you can see details in the figure below.
In the image above, cases can happen with BTC.D, as well as appropriate actions depending on the situation.
For example: The strategy in the first line can be interpreted as: When BTC.D increases ⇒ BTC price will increase ⇒ investors should buy BTC to make a profit, or those who are holding BTC can consider to take profits in the near future.
These strategies can be combined with flexibility with Holder or Trader’s trading strategies including Hold, derivatives trading.
Example 1: If everyone is a Trader, when analyzing if BTC.D is trending up and BTC price is also trending up, then people can predict that BTC price will continue to increase in the future.
=> A simple and highly effective strategy is Trade in favor of the trend: favoring Long BTC.
Example 2: If the user is a Holder, in May, we just had a very suitable time to buy and hold Altcoins.
=> Simple and highly effective strategy is Buy – Hold Altcoin and wait for the point of taking profit.
How to determine the trend of BTC Dominance
Interestingly, BTC Dominance can also be identified like a token or coin price chart with indicators in technical analysis such as: MA, EMA, Ichimoku, support, resistance, patterns, RSI … You can consider BTC.D like a coin and analyze the ups and downs based on the above indicators.
I will give an example by using Indicator Ichimoku Cloud to comment BTC.D, if you do not know what it is, prepare yourself a little knowledge through the article: What is Ichimoku cloud?
Now let’s start determining the trend of BTC Dominance:
Step 1: Go to tradingview.com => Go to the chart => Search and add the indicator “Ichimoku” to the Chart.
Step 2: Remove all unnecessary components, leaving only the clouds.
Step 3: Identify trends with Ichimoku Cloud.
Identifying trends with Ichimoku is simple.
Uptrend when price is above Ichimoku Cloud:
Downtrend when price is below Ichimoku Cloud:
The trend is not clear when the price is in the Ichimoku Cloud:
Note when determining BTC Dominance trend with Ichimoku Cloud:
- In my experience, it is more effective to use this method to determine on large frames, because signals in this way have a large delay (price has run for a while before the signal is confirmed). .
- In fact, users can combine with other indicators such as Support – Resistance, Trendline, Fibo, MA, etc. to bring better results.
In addition, users can combine multi-frame review for more diverse multi-view:
- H4 – Daily: Daily.
- Daily – Weekly: Every week.
- H4 – Daily – Weekly: Combine days and weeks.
Limitations of the BTC Dominance Index
In fact, the approach to Bitcoin Dominance above is oriented towards technical analysis, so the process of determining BTC Dominance will also have the same limitations as technical analysis such as:
- Analysis may have errors: The main feature of technical analysis is to use past data to predict the future, so errors are inevitable.
- Relativity: At the same time, the same chart, the same indicators, but 2 analysts can make 2 different opinions. Therefore, BTC.D is also approximate, not completely accurate.
- There are always conflicting opinions.
Because of the above limitations, I think that when investing with BTC.D, you should not All-in but need to have a reasonable capital allocation plan. In addition, you can also combine with fundamental analysis to choose the right coin, then use technical analysis to Timing, choose the optimal entry point.
Future of BTC Dominance
This indicator has been around for a long time, and has also proven to be extremely useful in assessing the current market and predicting the future market.
Therefore, there is a strong possibility that for many years to come, BTC Dominance will also remain one of the important indicators for not only traders, but anyone interested in the Crypto market.
BTC Dominance or BTC.D is one of the extremely useful tools for Traders and Holders in the medium and long term. BTC.D will work better when in large frames like Daily or Weekly. With my experience, users should combine Bitcoin Dominance analysis and fundamental analysis for a higher probability of winning.