Report: Bitcoin’s Dominance in Crypto Market is Dramatically Understated

Over the past few months, Bitcoin has dominated the investment scene. Year to date, the cryptocurrency has gained some 200%, which comes as traditional assets have bled out in anticipation of a recession and due to rising macroeconomic risk.

But one not-talked-about fact is that not only is Bitcoin outperforming traditional assets but altcoins too.

CoinMarketCap data shows that Bitcoin dominance — the percentage of the cryptocurrency market’s capitalization that is BTC — has risen to 70%, which is a level not seen in over two years. Even this 70% reading, however, may be understated.

Bitcoin Really is The Crypto King

Blockchain analytics firm Arcane Crypto recently released a report, accentuating that the traditional Bitcoin dominance statistic is somewhat invalid. They wrote:

“Using the price and market valuation as signal of strength is of course a weak proxy. Price is far from everything and many projects might be hugely successful without the token capturing a large market capitalization.”

They thus argued that a better way to measure a cryptocurrency’s dominance is by weighting the market capitalization of all cryptocurrencies against their trading volume, which they claimed is a measure of market liquidity.

In doing this, their research found that “Bitcoin’s market dominance is pushed well above 90%. This is true whether we use the volumes as recorded on CoinMarketCap, excluding stable coins, which are representations of other assets rather than “true” cryptocurrencies, [or Bitwise’s “Real Ten” exchanges].”

Their research has been indirectly corroborated by a comment from a prominent crypto fund manager.

Speaking on the “Citizen Bitcoin” podcast recently, Murad Mahmudov, a former Goldman Sachs banker, explained that Bitcoin, by many measures, is the only liquid cryptocurrency on the market. He even explained that if you were to place a $1 million sell order of any top 15 cryptocurrency save for Bitcoin, you could crash the market.

Why is Bitcoin Outperforming?

As reported by Blockonomi previously, Binance’s research division believes that much of this underperformance stems from a “flight to quality” from low-quality altcoins to the market leader.

You see, the countless altcoins that were propped up in 2017 and early-2018 have failed to deliver. Even bigger names in the cryptocurrency space have underperformed investors’ expectations.

That’s not all. The investors that are foraying into this industry are focusing their sights on Bitcoin. Just look to the media coverage of the cryptocurrency space. Notice how they don’t mention Ethereum, Litecoin, or Bitcoin Cash, but just Bitcoin.

This tacit “maximalism” has been reflected in institutional investors making sorties into this space. There’s a reason why Bakkt, the New York Stock Exchange-backed crypto startup, is starting with Bitcoin futures, not Ethereum futures or an altcoin basket ETF.

And to top it all off, regulators have taken a heavy stance against altcoins, especially those issued via a token sale or generation event. The U.S. Securities and Exchange Commission (SEC) has recently begun to wage war against ICOs, bringing lawsuits against Veritaseum and Kik’s KIN, for instance.

These cases have resulted in massive sell-offs for these tokens and have likely only added to the anti-altcoin sentiment currently brewing in the market.

With Bitcoin and Ethereum being the only two digital assets really signed off on by the SEC, traders are likely focusing their investment in these areas to avoid potential regulatory risks.

Do Altcoins Have Any Hope?

This may leave you wondering if Bitcoin will continue to dominate.

According to a number of cryptocurrency venture capitalists and investors, Bitcoin’s strength against altcoins — well at least Ethereum — may soon end. Placeholder’s Chris Burniske recently wrote that Ethereum is currently like Bitcoin in 2014 in 2015, which is when the cryptocurrency exhibited “the best risk/reward period for investors”.

His tweet implied that Ethereum’s fundamental momentum and price are bifurcating, but that should history repeat, ETH’s value could soon surge.

1/ $ETH is enduring its 1st mainstream bear market, just as $BTC did in 2014/15.

In retrospect, 2014/15 was the best risk/reward period for investors to get BTC exposure.

— Chris Burniske (@cburniske) August 20, 2019

   

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