Bitcoin dominance is bitcoin's market capitalisation divided by the market capitalisation of all cryptocurrencies. It is quoted as a percentage and used as shorthand for where risk appetite sits: rising dominance is read as capital concentrating in the largest, most liquid asset, and falling dominance as appetite spreading into smaller ones.
That reading is sometimes right. It is a ratio, though, and a ratio moves when either side moves. Dominance can rise because bitcoin gained, because everything else fell, or because both fell and bitcoin fell less. Those are three different market conditions with the same reading, and the chart alone does not distinguish them. Checking dominance against total capitalisation is what separates them: dominance rising while the total falls is defensive, dominance rising while the total rises is bitcoin leading.
The denominator has also changed character over the years, which makes long comparisons unreliable. In 2013 it held a few dozen assets. It now holds thousands, plus stablecoins whose combined capitalisation is substantial. Stablecoins are the awkward case: their capitalisation grows when dollars are deposited with an issuer, which mechanically dilutes bitcoin's share while representing money arriving rather than leaving. Some data providers exclude them from the denominator for exactly this reason, and the two versions of the figure can differ by several points.
New listings do the same thing more subtly. Every token added to the index adds capitalisation that was never invested — much of it fully diluted paper attached to thin books — and dilutes bitcoin's share without any holder doing anything. A dominance chart across a period of heavy token issuance is partly a chart of issuance.
There is also a definitional wrinkle worth knowing. Wrapped bitcoin on other chains is counted by some providers as a separate asset, so the same underlying coin appears twice in the same total. The effect is small today but it is the kind of thing that makes two dominance charts disagree.
The figure remains worth watching, with the denominator in view. Sustained moves in one direction do describe something real about where liquidity is concentrating. Sharp single-day moves are usually arithmetic. As with every ratio, the useful discipline is to look at both terms before drawing a conclusion from the quotient.