Why Bitcoin’s Increasing Market Dominance Matters
The drop in Bitcoin price this week which affected virtually every other cryptocurrencies especially those in the top 20 range has seen Bitcoin’s market cap dominance rise to a new high of ~55%. Its market cap now tops $119.58 bln as against every other altcoins combined – about 1915 of them – covering $97.52 bln.
The dominance rate is gradually becoming relevant in the crypto market though with conflicting views on why the metric could be useful and whether it is the best indicator of the strength of given cryptocurrencies. Seeing that the dominance seems to increase and as the bear market continues is another point. Aside that it makes the Bitcoin market bullish, it shows the susceptibility of the total crypto market to the top digital currency.
Going by recent trend, altcoins follow suit when Bitcoin increases in value for some days. However, when Bitcoin sees a correction and reverts to its previous level or thereabout, altcoins tend to sink a little lower as a bit of their respective market cap gets retained in Bitcoin’s.
The widening margin is also proving previous outlooks wrong especially in the case of Ethereum which has earlier been touted to rival Bitcoin in terms of capitalization. Today, Bitcoin’s market cap is worth almost five times than Ethereum’s unlike last year when it was just like x3.
Though it is believed that many altcoins do not compete directly or at all with Bitcoin as they tend to focus on providing services or solutions to problems beyond Bitcoin’s scope, the rising dominance shows their level of reliance on Bitcoin. Firstly, those seeking to liquidate their investment or opt out of a particular project have to trade against Bitcoin. Also, since most altcoins are yet to prove their products’ supposed use cases due to their not being ready, most altcoins’ main usage at the moment is for speculation which makes them indirectly competitive with Bitcoin.
While Bitcoin’s failure may ruin the entire cryptocurrency economy, its Bitcoin dominance level may continue to increase with time if altcoins remain quite useless across the board.