Bitcoin threatens all other cryptocurrencies
The crypto market has yet to regain its upward momentum after its collapse. Experts point out that this “calm” also brings to the surface an additional factor that can “drain liquidity” from alternative cryptocurrencies or altcoins.
The situations experienced in the crypto market hark back to other times. Bitcoin has seen its longest run of weekly declines, its price has recently been locked at unusually low levels of volatility and collapses among stable cryptocurrencies are undermining investor confidence. Another situation reminiscent of the past goes more unnoticed in the market, despite the impact it has on all other digital currencies. It is the increasing weight of bitcoin in the cryptocurrency mix.
Its market share, or dominance rate as the experts tend to call it, has been steadily rising in recent weeks. Since 10 May, in just four weeks, it has gone from 41.49% to almost 48%. This percentage change is the result of multi-million dollar adjustments in the market. At present, the total capitalisation of cryptocurrencies is 1.24 trillion dollars, and of this figure, almost half, more than 571 billion dollars, is concentrated in bitcoin.
From altcoins to the bitcoin haven
The falls in altcoins are not only caused by the decision of some of their investors to leave the crypto market to await more favourable times. Other investors decide not to exit the market, but as in traditional markets, they opt for more “defensive” positions.
70% ownership as a precedent
The incessant transfer of investment from altcoins to bitcoin maintains a clear upward trend in the rate of dominance of the largest cryptocurrency. Its escalation does not cease, and raises the debate as to how far its hegemony could go.
“In the short term it is possible to reach 50% dominance” if the slump in the crypto market persists, predicts Herminio Fernández, CEO of EurocoinPay, although he predicts that “in the long term bitcoin will gradually lose market share in relation to crypto”.
Implications
Beyond the potential effects on its liquidity and volatility, bitcoin’s growing dominance highlights the market’s declining confidence. Herminio Fernández, admits that “it would be bad news for crypto projects, as the market would have a very bearish trend, its reading would be a disinterest and failure for all new projects such as metaverse, NFT and all decentralised finance systems (DeFi)”.
The current trend brings to the surface an additional risk, that of a greater decoupling of altcoins from bitcoin. Herminio Fernández is sceptical about a possible decoupling, and recalls that “the market since 2014 has always shown that a fall in Bitcoin produces a large drop in the value of the other cryptos and a rise in bitcoin produces a large increase in their value”.
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Disclaimer: The information set out herein should not be taken as financial advice or investment recommendations. All investments and trading involve risk and it is the responsibility of each individual to do their due diligence before making any investment decision.