Bitcoin is the dominant force in the cryptocurrency industry. The world’s leading cryptocurrency continues to dwarf all other tokens and assets on the market today. The current state of the Bitcoin Dominance Index is a sign of what the future may hold for this industry moving forward.
The Bitcoin Dominance Index ‘Problem’
Over the years, it has become apparent no cryptocurrency can rival Bitcoin. Not because they are inferior on the technology front, but they simply don’t generate the necessary mainstream appeal. Bitcoin has a first-mover advantage in the cryptocurrency world which cannot be overlooked. This has spawned a new metric, known as the Bitcoin Dominance Index. It depicts the correlation between Bitcoin’s total valuation and the combined market cap of all cryptocurrencies.
As is to be expected, the Bitcoin Dominance Index always remains relatively high. For most years, the percentile sits at around the 40% mark. This indicates Bitcoin’s total market cap makes up roughly 40% of the total cryptocurrency industry’s valuation. This year, however, that figure has passed 50% and 55% on more than one occasion. A prolonged bear market tends to make speculators flock to Bitcoin rather than diversify their portfolios.
This creates a rather worrisome problem in the cryptocurrency industry. Bearish times resulted in increasing Bitcoin popularity. It also makes a lot of new investors not look beyond BTC, which is not necessarily a good sign. The thousands of assets on the market all try to succeed in their own way. Most of those projects will disappear into obscurity due to a lack of traction, development action, or liquidity.
More Focus on Investing Rather Than Use
There are other drawbacks to a Bitcoin Dominance Index rise. It makes the world’s leading cryptocurrency more appealing to risk-averse speculators. As Bitcoin seems to suffer less from volatility compared to many altcoins, it has a perceived “more stable” position. This is despite Bitcoin losing hundreds of dollars in value when a major drop occurs. Altcoins typically lose tens of dollars when such changes occur.
Additionally, the liquidity concerns affecting small-cap coins will not diminish either. A vast number of currencies have a market cap of $10 million or less. They also struggle from a lack of liquidity, primarily because of the rising Bitcoin Dominance Index. Money pours into Bitcoin, first and foremost. Ensuring it moves on to other currencies remains a very big challenge, especially for lesser-known projects.
It is evident newcomers will look toward the Bitcoin Dominance Index. That is only normal, as Bitcoin is the most popular offering on the market today. It seems unlikely any altcoin will decouple itself from BTC in the foreseeable future. Until that happens, Bitcoin will continue to dominate the cryptocurrency landscape.
What do you think about the Bitcoin Dominance Index? Let us know in the comments below.
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