Bitcoin's (BTC) falling dominance among cryptocurrencies may signal the end of extreme price volatility for the first virtual token, experts believe. What does this metric tell us about the digital currency market and BTC's prospects as investment according to market watchers?
There are currently some 16,602 virtual tokens, according to CoinMarketCap.com. Every one except bitcoin is referred to as an altcoin – short for alternative coin. According to one school of thought, dubbed bitcoin maximalism, bitcoin is the only digital asset needed.
With a total market capitalisation $772bn (£568bn), bitcoin makes up a whopping 40% of all those coins' market value combined.
But just a year ago, the cryptoking accounted for 70% of the whole cryptocurrency market's capitalisation.
When BTC's market dominance fell to 39.5% last week, it marked a three-year low of BTC's market dominance.
Why did bitcoin's market share shrink by half, when institutional investors embraced the digital asset? And what does this movement tell us about the investment potential for the original cryptocurrency?
Chart: Bitcoin (BTC) market dominance fell steadily in 2021
“Bitcoin’s decline in market dominance can be primarily attributed to the rise of NFTs (non-fungible tokens) and DeFi (decentralised finance), which increased inflows into alternative digital assets like ethereum and solana,” says Charles Hayter, co-founder and chief executive of cryptocurrency market data provider CryptoCompare.
“With greater liquidity in other markets and the general growth of the larger digital asset ecosystem, investors continue to look for options to diversify their digital asset exposure.”
'High-risk, high-reward investment potential in crypto shifting' away from BTC
The last time BTC's market dominance dipped to 36% was in January 2018 amid the ICO (initial coin offering) boom. The cryptocurrency bounced back and sustained its levels until the last year. Will this bounce repeat or is a lower market share for BTC here to stay?
“As bitcoin becomes increasingly mainstream with institutional adoption, the days of extreme price volatility and 10x gains are coming to an end. Long-term, we’ll likely see a much more boring yet steady growth for bitcoin as the market matures and becomes more liquid," says Michal Cymbalisty, co-founder of Domination Finance, a decentralised exchange that tracks the market cap of bitcoin relative to the market cap of altcoins, allowing users to trade directly on the overall market dominance of BTC, ETH, and USDT.
“The rest of the crypto ecosystem, with new layer-1s, layer-2s, and DeFi protocols being built, is thriving with innovation — this is where the high-risk, high-reward investment potential is shifting, especially as it now seems that bitcoin could ultimately become decoupled from the rest of the crypto markets.”
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