Despite the bear market of 2018, which saw cryptocurrency prices across the board fall more than 90 percent, there has been a general increase interest for altcoins relative to that of the original cryptocurrency, Bitcoin.
While BTC still holds the top position in market capitalization by a wide margin ($51 billion over second-ranked ETH as of writing), Bitcoin dominance has undergone a waning effect over the last six months. In January 2017, BTC dominance was near its peak with over 85 percent of the entire market share. One year later, following the crypto price boom in the early days of 2018, BTC dominance had slipped as low as 38 percent, with many analysts at the time predicting a flippening on the horizon. Instead, the entire market collapsed, with altcoins taking the brunt of the price fall and Bitcoin slowly gaining market share throughout the year.
However, the last four months have witnessed a return to the erosion of BTC influence over the market, as investors and developers alike seek projects that will re-invigorate interest in cryptocurrency.
According to research published on January 11 by the Federal Reserve Bank of St. Louis, the increase in altcoins competing for development and market interest has had a significant impact on the valuation of Bitcoin. The report divides outlook for the industry into two dominating perspectives, both on opposite ends in regards to the future valuation of Bitcoin. For the bulls, their belief lies in the limited supply and deflationary nature of BTC, with the idea that Bitcoin will inevitably appreciate in the long term as demand increases relative to the dwindling supply. Bears, on the other hand, believe that BTC topped out in a niche market interest, and is now destined to dwindle slowly to zero.
The report conceded a much more realistic stance, stating that the future of BTC is likely between “mooning” and becoming completely worthless,
“We think the future price path is more likely to remain bounded between these two extremes.”
However, the majority of the research centered around how the growing altcoin market throughout 2017 and 2018 has impacted the price of Bitcoin, with the ultimate finding that the potential valuation of BTC has indeed been hampered. Compared to investors bullish on Bitcoin, who believe the currency’s market dominance will continue and therefore raise the price of BTC with general market growth, the St. Louis group reports a different narrative.
Rather than continuing to rise relative to the market, the increased supply and valuation of altcoins has dampened the price and market capitalization of Bitcoin, imposing a general limitation on its growth,
“While Bitcoin’s price is not likely to fall to zero, the prospect of a flood of Altcoin competing with Bitcoin in the wealth portfolios of investors is likely to place significant downward pressure on the purchasing power of all cryptocurrencies, including Bitcoin.”
The report seems to indicate that the crypto markets are experiencing a finite amount of investment capital, with a distribution that does not favor Bitcoin above all other assets. Investors hoping a turn in the bear market for cryptocurrency would yield the largest gain for Bitcoin may want to consider the possibility of a more diverse portfolio, or at least regard the altcoin market as a major player moving forward relative to what BTC has already managed to accomplish in terms of valuation.