A Brief History of Bitcoin Dominance
Bitcoin dominance refers to the percentage share of Bitcoin (BTC) in the total market capitalization of the cryptocurrency market. Originally, Bitcoin was the only digital asset in existence, and it naturally accounted for the entire crypto market's capitalization since its inception in 2009. However, the landscape has changed over time.
In 2013, the first wave of altcoins emerged, adding their value to the formula of the crypto market capitalization. Ethereum, Bitcoin's closest competitor, was introduced in 2015, giving rise to its native currency, ether. The year 2017 witnessed the ICO boom, which further diluted BTC dominance and caused it to reach an all-time low. However, it managed to recover and surpass 50% within a few months.
Currently, BTC dominance faces significant competition from tokens associated with decentralized finance (DeFi), non-fungible tokens (NFTs), and metaverses, along with the existence of over 20,000 non-Bitcoin cryptocurrencies.
Introduction
Bitcoin, the world's first cryptocurrency, was publicly introduced in 2009 by an anonymous developer or group known as Satoshi Nakamoto. Despite the emergence of numerous competitors, Bitcoin has maintained its position as the largest and most valuable cryptocurrency. Its revolutionary technology has also paved the way for the creation of thousands of alternative coins, collectively referred to as altcoins.
The significance of Bitcoin's position in relation to other digital assets is vital, serving as an indicator of the overall state of the crypto market. To gauge Bitcoin's market capitalization relative to the broader crypto market, traders and analysts employ a ratio known as Bitcoin dominance or BTC dominance.
Bitcoin Dominance: Understanding Its Significance
Bitcoin's dominance in the crypto market plays a crucial role in assessing the overall state of digital assets. Traders and analysts utilize a metric called BTC dominance, which represents the share of Bitcoin's value in the total cryptocurrency market cap. This ratio provides insights into altcoins' performance compared to Bitcoin.
BTC dominance holds significant importance as traders historically use it to determine whether altcoins are on an upward or downward trend relative to Bitcoin. For instance, a decline in BTC dominance during 2017 indicated a skyrocketing altcoin market, coinciding with a bullish phase for the entire crypto industry.
From One Cryptocurrency to Thousands
The cryptocurrency landscape witnessed significant developments since Bitcoin's inception. In 2011, the first altcoin, litecoin (LTC), entered the market, followed by an increasing influx of new altcoins in 2013. Ripple's XRP and other tokens joined the crypto market, yet Bitcoin's dominance remained at approximately 95% during this period.
The Birth of Ethereum and the ICO Boom
In 2015, Ethereum (ETH) emerged as a blockchain platform aiming to rival Bitcoin by offering more use cases beyond financial services. Despite the competition posed by Ethereum's native token, ether (ETH), Bitcoin still accounted for around 90-95% of the crypto market. However, significant changes unfolded in 2017 with the onset of the initial coin offering (ICO) boom.
Initial coin offerings became a popular crowdfunding method for early-stage crypto projects from 2017 to 2018. Thousands of unique ICOs raised over $10 billion collectively, attracting funds that flowed from Bitcoin into emerging altcoins. Investors were enticed by promising but unproven use cases and the potential for significant price fluctuations.
Bitcoin's Dominance Decline and the Crypto Winter
The unprecedented influx of altcoin competition led to a substantial decline in Bitcoin dominance, reaching an all-time low of around 37% in January 2018. The ICO boom, while capturing considerable attention, proved short-lived as investors recognized the lack of fundamental principles and questionable practices within many projects. Negative sentiment permeated the industry, resulting in a prolonged period of price decline and stagnation known as the crypto winter.
Bitcoin's Recovery and the COVID Market
As altcoin values plummeted, Bitcoin dominance gradually climbed back to over 50% by the end of 2018. In 2019, Bitcoin experienced a modest resurgence, with its price reaching around $7,000 by the year's end and BTC dominance peaking at approximately 70% in September. However, the global COVID-19 pandemic in 2020 brought about significant changes.
The aftermath of a brief dip caused by the pandemic led to a record-breaking bull run in the crypto market. Concurrently, BTC dominance reached 72% in January 2021, its highest level since 2017, before declining to 39% by mid-2021. The pandemic-induced boredom and economic stimulus measures prompted retail traders to explore day trading and investing, turning altcoins into an enticing but risky choice for newcomers seeking quick gains.
A Brief History of Bitcoin Dominance
The Influence of DeFi, NFTs, and Ethereum's Transition
The rapid growth of decentralized finance (DeFi) and non-fungible tokens (NFTs) further diminished Bitcoin's market share. Competing blockchains like Ethereum and Sol
ana gained attention through innovations, with Solana's price surging from $1.50 to an all-time high of $250 in 2021. These developments, combined with the ongoing bear market and Ethereum's shift to proof-of-stake (ETH 2.0), hindered BTC dominance from surpassing 50%.
Closing Thoughts
The altcoin market's growth in recent years has diluted Bitcoin's market share, posing increasing competition. While Bitcoin remains the leading cryptocurrency based on market capitalization, its dominance is unlikely to diminish soon. Investors view Bitcoin as a store of value due to its limited supply, earning it the nickname "digital gold."
Nevertheless, Bitcoin's first-mover advantage in the crypto industry may not last indefinitely if a superior alternative emerges. Only time will reveal whether another cryptocurrency can dominate the market as Bitcoin has thus far.
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Editor: James Felix
Source: https://academy.binance.com/en/articles/a-brief-history-of-bitcoin-dominance
