Why should you be paying attention to Bitcoin dominance? Why is it such an important metric?
Let’s start from the beginning.
The original crypto was Bitcoin. A couple years later, Litecoin came out as a “Silver to Bitcoin’s Gold”. It was a promising narrative, but that story hasn’t really worked out. It’s basically just known as a Bitcoin knock-off today. It has no special features or improvements that make it easier to use, just some clever marketing.
Since Litecoin, there have been a ton of attempts to create a better Bitcoin, thousands of coins to date with all sorts of use cases. And each of these new coins has diluted Bitcoin’s percentage of overall crypto market cap.
But that trend of market cap dilution is now moving in reverse. Why? Because so far, the only real use case crypto has today is censorship resistant money.
Which Coin Is Winning As Censorship Resistant Money?
Transacting on the darknet is one of the biggest hair-on-fire problems that crypto solves. There are no transactions with cash, credit cards, fiat currencies, it’s 100% crypto. And while there are a handful of cryptos that see some volume on the darknet, it’s a landslide in favour of Bitcoin.
And that’s why Bitcoin’s market cap is swallowing the rest of the crypto industry market cap. The adoption of money is a network effect, where the coins with actual adoption become the norm, and any alternative needs to become 10x better to disrupt the strong network effect that has already formed.
Back in the ICO mania of 2017, Bitcoin’s market cap share of all crypto (BTC dominance) got as low as about 30%. Why did this happen between the end of 2017 and today?
The ICO mania was the first time people realized they could easily create their own coins. They believed they could come up with the “next Bitcoin”, and they couldn’t. Many projects were never even built, and the ones that were haven’t gained any real adoption.
As a result, BTC dominance has more than doubled and now sits above 65% today.
And while other coins can claim they have superior features or speed, Bitcoin is proving to be good enough to retain its users. Grayscale’s quarterly reports show that institutions are almost exclusively buying Bitcoin, and that trend can also be seen at the consumer level where apps like Cash App exclusively sell Bitcoin to customers.
Newcomers to crypto marvel at the idea of some altcoin pumping to the moon, but that possibility is growing increasingly unlikely every day. Bitcoin is solidifying as the world’s trustless payment network, and it would take a massive improvement to change that.