Let’s be honest about Bitcoin (BTC) versus other coins. Bitcoin is easily the most popular and recognized cryptocurrency in the world. It has brand-name status and a level of trust that other coins don’t have. I like to call it the “mother ship” of cryptocurrencies.
That advantage is great for Bitcoin bulls, but it comes at a price. When Bitcoin increases in price, it’s generally viewed as bullish for cryptocurrency. However, the balance isn’t so simple as that. There’s a concept known as “Bitcoin dominance” that can make Bitcoin’s popularity a threat to all other digital coins.
Understanding Bitcoin dominance
Binance defines Bitcoin dominance as “the ratio between the market cap of Bitcoin to the rest of the cryptocurrency markets.” This ratio was closer to 100% from 2009 to 2013 or so. Back then, the vast majority of cryptocurrency consisted of Bitcoin. Eventually, Ethereum (ETH) and then Litecoin (LTC) became rivals, later followed by Ripple (XRP).
Investors should understand that the price of Bitcoin can go down, but its dominance among cryptos can stay the same or go up. Today, Bitcoin’s dominance stands at 69%. During “alt season,” Bitcoin’s dominance goes down and altcoins gain market share against Bitcoin. So far, I haven’t found a reliable way to predict when alt seasons will happen.
Price does have an impact on Bitcoin dominance because people tend to get more involved with Bitcoin when the price goes up. Another factor that impacts Bitcoin dominance is hash rates, which is the speed of Bitcoin miners’ output. In fact, one cryptocurrency expert believes Bitcoin’s hash rate will force altcoins out of existence eventually.
Bitcoin versus Ethereum
Cryptocurrency traders know that Bitcoin has done well this year while many altcoins have lagged. Ethereum remains Bitcoin’s greatest rival, and the difference between the two coins has been striking. At the moment, Ethereum has dropped around 90% from its January 2018 high price of $1,431.
As a result, approximately 31.31 million Ethereum wallet addresses (around 90% of them) are in a losing position now. In other words, the price of Ethereum is lower than when purchased in all of those wallets. And if we look at 2019 so far, Ethereum is at a small loss. Meanwhile, Bitcoin is up around 103% in 2019 so far.
Much of this trend is due to Ethereum’s technical upgrades still running behind schedule. Digital Assets Data research analyst Connor Abendschein explains, “Ethereum has consistently missed deadlines for protocol upgrades… Ethereum 2.0 was supposed to have already gone into effect earlier this year, and it still hasn’t gone through.”
It’s probably fair to say that these issues have contributed to Bitcoin dominance this year. But whatever the impetus might be, Bitcoin dominance has increased dramatically from 51% in January to nearly 70% now. That represents an 87% increase in Bitcoin dominance during that time.
The destruction of altcoins?
According to one cryptocurrency expert, Bitcoin dominance could lead to the destruction of altcoins. Tone Vays has stated, “One of my predictions for 2020 is going to be Bitcoin dominance in 2020 reaching 85%… I think we have another 10-15% in Bitcoin to gain… as it continues towards 90% and 95% and then 98%.”
The suggestion seems to be that Bitcoin will squeeze other cryptocurrencies out of existence—or at least marginalize them. Vays cites Bitcoin’s powerful hash rate as the main factor in Bitcoin’s success. Since December of 2017, Bitcoin’s hash rate has increased by 800%.
Vays also indicated that no altcoin has that much hash rate growth. I have to admit that he’s right about that. Moreover, Vays considers a $50,000 price target for Bitcoin by 2023 to be reasonable. As for me, I’ve learned to expect the unexpected in the world of cryptocurrency. Therefore, I won’t rule anything out.
The takeaway here, I believe, is to be cautious with altcoins. I’m not suggesting selling anything. It just might be wise to watch the hash rates for clues to the future of Bitcoin and its many competitors.
Want to learn more about investing in cryptocurrency? Check out How to Invest in Cryptocurrency: A Beginner’s Guide and Bitcoin versus Blockchain: All You Need To Know.