What does the fall in BTC market dominance mean for investors?

NFTs and DeFis have brought down bitcoin (BTC) market dominance – Photo: Shutterstock

According to experts, the fall of Bitcoin (BTC) dominance among cryptocurrencies could signal the end of the extreme price volatility of the first virtual token. What does this metric tell us about the digital currency market and the prospects of BTC as an investment according to market watchers?

There are currently some 16,602 virtual tokens, according to CoinMarketCap.com. Everything except bitcoin is referred to as altcoin – short for alternative coin. According to one school of thought, dubbed bitcoin maximalism, bitcoin is the only necessary digital asset.

With a total market capitalization of $772bn (£568bn), bitcoin accounts for 40% of the market value of all these coins combined.

But just a year ago, cryptoking accounted for 70% of the capitalization of the entire cryptocurrency market.

When BTC’s market dominance fell to 39.5% last week, it marked a three-year low of BTC’s market dominance.

Why did bitcoin’s market share halve as institutional investors embraced the digital asset? And what does this move tell us about the investment potential of the original cryptocurrency?

Chart: Bitcoin (BTC) market dominance fell steadily in 2021

Chart depicting bitcoin (BTC) market dominance over the years.Bitcoin (BTC) market dominance was plummeting in 2021. – Credit: TradingView

“Bitcoin’s decline in market dominance can be primarily attributed to the rise of NFTs (non-fungible tokens) and DeFi (decentralized finance), which have increased flows into alternative digital assets like Ethereum and Solana,” says Charles Hayter , co-founder and chief executive of cryptocurrency market data provider CryptoCompare.

“With greater liquidity in other markets and the general growth of the broader digital asset ecosystem, investors continue to look for options to diversify their exposure to digital assets.”

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“Potential for high-risk, high-reward investment in crypto transfer” away from BTC

The last time BTC’s market dominance fell to 36% was in January 2018 amid the ICO (initial coin offering) boom. The cryptocurrency rebounded and maintained its levels until last year. Will this bounce repeat itself or is lower market share for BTC here to stay?

“As bitcoin becomes more mainstream with institutional adoption, the days of extreme price volatility and 10x gains are coming to an end. In the long term, we are likely to see much more boring but steady growth for bitcoin as the market matures and becomes more liquid,” says Michal Cymbalisty, co-founder of Domination Finance, a decentralized exchange that tracks bitcoin’s market capitalization against altcoins’ market capitalization, allowing users to trade directly on the overall market dominance of BTC, ETH, and USDT.

“The rest of the crypto ecosystem, with new Layer 1, Layer 2 and DeFi protocols being built, is thriving through innovation – this is where the potential for high-risk investing and high-yield is evolving, especially as it now looks like bitcoin may finally decouple from the rest of the crypto markets.

Read more: Crypto News: We’re ‘Officially in a Bear Market’, Traders Say