The Bitcoin dominance percentage is now approaching 70%, its highest levels since March 2017, and up 37.5% from its all-time low of 32.5% in early January 2018. The Bitcoin dominance percentage is calculated by dividing the Bitcoin market cap by the market cap of all of the other cryptocurrencies combined and therefore is a good indicator of the strength of the Bitcoin market versus the strength of the altcoin market. The 37.5% rise in the Bitcoin dominance percentage since early 2018 indicates that altcoins have on average lost 37.5% of their value relative to Bitcoin during the past year and a half. This article explores why this increase in Bitcoin dominance percentage is happening, and what this means for the future of the cryptocurrency market.
A Brief History of Bitcoin’s Dominance Percentage
Before discussing why Bitcoin’s dominance percentage is rising while the altcoin market is contracting, it is important to recap the history of the Bitcoin dominance percentage. At the beginning of crypto, when Bitcoin was created by Satoshi Nakamoto in 2009, Bitcoin had a dominance percentage of 100% since it was the only cryptocurrency. By 2013, the Bitcoin dominance percentage declined to 95% as Litecoin and several other alternative cryptocurrencies entered the market. The rise of Ripple towards the end of 2014 caused the first major decline in the Bitcoin dominance percentage, to as low as 77%, while the Ripple dominance percentage peaked near 15%.
In early 2017, the Bitcoin dominance percentage was still as high as 87%, but that drastically changed due to the rise of Ethereum and the associated initial coin offering (ICO) bubble. By June 2017, the Bitcoin dominance percentage dropped as low as 37%, and the Ethereum dominance percentage hit an all-time high of 33.5%. This was the first time that Bitcoin’s dominance percentage declined below 50%, and the closest an alternative cryptocurrency came to overtaking Bitcoin’s dominance percentage.
During the major Bitcoin rally at the end of 2017, when Bitcoin hit an all-time high of USD 20,000, the Bitcoin dominance percentage rose as high as 66%. However, Bitcoin soon crashed as the bear market started, and the Bitcoin dominance percentage fell to the all-time low of 32.5%. This was partially due to the ICO bubble peaking about a month after Bitcoin began to crash, so while Bitcoin was crashing alternative cryptocurrencies were still rapidly gaining value.
The ICO bubble popped in early 2018, and numerous ICOs turned out to be scams or poorly planned projects, bringing about heavy investor losses and government regulations. The impacts of the ICO bubble collapse continue to this day, with the dominance percentage of ICO cryptocurrencies and Ethereum declining to 15% and 7.5% respectively. Ethereum was the most popular platform for ICO cryptocurrencies, and this is probably the reason it is losing market share as the ICO bubble deflates.
Aside from ICO cryptocurrencies and Ethereum losing value relative to Bitcoin, major alternative cryptocurrencies like Litecoin, Ripple, Monero, Dash, and Bitcoin Cash are also losing value relative to Bitcoin. This trend suggests that perhaps Bitcoin may eventually go back to the old regime of having 80-90% of the dominance percentage, while altcoins only account for a small fraction of the total cryptocurrency market cap.
Dot-Com Bubble Reveals How the Cryptocurrency Market Could Evolve
During the 90s, the internet first became available to average consumers, and this quickly led to the rise of the dot-com bubble as every possible internet business was created, and as investors rushed to put their money into these businesses. This is quite similar to the ICO bubble of 2017-2018 when every possible blockchain business was created, and a frenzy ensued as investors rushed in.
In 2000, the dot-com bubble burst, causing a majority of internet companies to go out of business, and simultaneously revealing that many of these internet companies were scams or poorly planned. Just like with the ICO bubble, government regulators jumped in to stop the practices that led to the dot-com bubble, further dampening the industry.
Ultimately, major corporations like Google, Facebook, and Amazon survived the dot-com bubble and went on to become some of the most powerful companies in the world. Essentially, instead of having a massive amount of companies launching and raising money, the internet industry consolidated into the hands of a smaller amount of companies that had good business plans and were fundamentally useful.
The striking similarities between the ICO bubble and the dot-com bubble perhaps reveal the direction that the cryptocurrency market is heading. Instead of having a plethora of cryptocurrencies that are launching and raising money, the cryptocurrency market may consolidate down to a handful of reputable major cryptocurrencies that are fundamentally useful. Indeed, the dominance percentage data suggests that this is exactly what is happening.
Bitcoin is the King of Cryptocurrency
As the ICO bubble continues to deflate, the expectations that any cryptocurrency will overtake Bitcoin has diminished to nearly zero. Indeed, the mentality during the ICO bubble was to invest in the next cryptocurrency that would become like Bitcoin, but now it seems no cryptocurrency can truly compete with Bitcoin. This is because Bitcoin performs the function of a cryptocurrency perfectly; Bitcoin enables users to send money anywhere in the world instantly and securely without using identification information, and the network is decentralized so no centralized entities like governments can attack Bitcoin.
Also, Bitcoin has a worldwide network of cryptocurrency exchanges, Bitcoin ATMs, and businesses that accept Bitcoin, making it easy to exchange the cryptocurrency with fiat currency worldwide, and enabling it to be a currency that can be used in real-life. Further, Bitcoin has the longest and most reputable track record, and is considered the most valuable cryptocurrency. This is causing newbies and average users as well as retail investors and institutional investors to generally choose Bitcoin instead of alternative cryptocurrencies, now that the ICO bubble has basically ended.
Thus, it appears the cryptocurrency market is heading towards a future where Bitcoin reigns supreme as the king, and perhaps there will be several other fundamentally useful cryptocurrencies that have some value as well. However, most of the thousands of cryptocurrencies that launched during the ICO bubble may continue to lose value until they cease to exist. Overall this will lead to a healthier cryptocurrency space where there are less scams and fewer investor losses. This can be compared to how a forest fire burns away the congestion of old-growth and undergrowth, paving the way for new and stronger trees to rise out of the ashes.
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