The BTC Dominance strategy is used to analyze Bitcoin's dominance (BTC) in the cryptocurrency market compared to other currencies (Altcoins), helping traders make more accurate investment decisions. Here is a detailed explanation of the strategy:
1. Understanding BTC Dominance.
- Definition: The market cap value of Bitcoin compared to the total market cap of all cryptocurrencies.
{BTC Dominance} = ( MC of BTC ÷ MC of ALTs) × 100
- Interpretation:
- If dominance rises: Bitcoin outperforms altcoins (example: from 40% to 50%).
- If dominance decreases: altcoins outperform Bitcoin (example: from 70% to 60%).
2. Trading Strategies Based on BTC Dominance
A. When Bitcoin Dominance (BTC↑ Dominance↑) increases.
- Scenario: Capital shifts from altcoins to Bitcoin (usually during periods of uncertainty or sharp declines).
- Strategy:
- Buying: Bitcoin (BTC) or staying out of the market.
- Selling/Avoiding: Poor performing altcoins.
- Reasons:
- Bitcoin is considered a relatively "safe haven" compared to altcoins.
- Altcoins may experience sharp collapses (Altcoin Season).
B. When Bitcoin Dominance (BTC↓ Dominance↓) decreases.
- Scenario: Capital shifts from Bitcoin to altcoins (usually during strong upward periods or "Altcoin Season").
- Strategy:
- Buying: Strong altcoins (like ETH, SOL, ADA) or promising projects.
- Selling/Avoiding: Bitcoin if dominance is in continuous decline.
- Reasons:
- Altcoins may yield higher returns during rapid upward movements.
- Increased risk with rising speculation on altcoins.
3. Tools for Analyzing BTC Dominance
- Chart: Track BTC.D on TradingView.
- Technical Indicators:
- Moving Averages (MA): To determine the overall trend (example: if the price is above 200MA, BTC dominance is bullish).
- RSI:
To determine overbought/oversold conditions (if RSI > 70, dominance may experience a correction).
- Support and Resistance: Identify potential reversal areas.
4. Factors Affecting BTC Dominance
- Economic Factors: Such as fluctuations in stock markets or monetary policy.
- Bitcoin Events: Such as Halving or major institutional adoption.
- Altcoin Developments: Launch of new projects or technical updates (example: Ethereum upgrade).
5. Practical Example
- After the 2024 Halving event, Bitcoin's dominance increased due to positive expectations, then decreased as capital flowed into altcoins.
- Trading:
- If dominance decreases from 55% to 45%: look for opportunities in altcoins.
- If it rises from 40% to 50%: focus on Bitcoin.
6. Risk Management
- Diversification: Do not put all capital in BTC or altcoins only.
- Stop Loss: Pre-determined, especially in altcoins with high volatility.
- Following: Ride the dominance trend and do not counter it.
Summary
The BTC Dominance strategy helps you to:
- Determine the best buying/selling times for Bitcoin against altcoins.
- Avoid losses during altcoin collapse periods.
- Exploit "Altcoin Seasons" for higher returns.
> Note: Use this strategy with other tools like fundamental analysis (news, technical developments) to enhance results.
• Four cases to observe in Market Cap:
Market cap = BTC D + ALTs
1- If Market Cap rises and BTC D rises with it, it means Bitcoin's price will increase and also cryptocurrencies will rise.
2- If Market Cap rises and BTC D decreases, it means Bitcoin's price will decrease and other currencies will rise as liquidity has gone to ALTs.
3- If Market Cap decreases and BTC D remains stable, it means Bitcoin's price stays the same while other currencies' prices will drop as the withdrawn liquidity was taken from ALTs.
4- If Market Cap decreases and BTC D decreases, it means liquidity has been withdrawn from the entire market, whether Bitcoin or other currencies.
