Crypto markets roared this week. Ethereum is up 20% in the last seven days, while companies like Polkadot (DOT) and Chainlink (LINK) are up even more. Solana (SOL), this year’s emerging cryptocurrency, ended the week with an astonishing 60% surge. But Bitcoin barely budged.
As many of its rivals galloped to new heights, Bitcoin posted a dismal 4% gain as it struggled to stay above the $50,000 symbolic mark, which he first smashed earlier this year. In a major development, the so-called “bitcoin dominance“—its market share compared to other cryptocurrencies—fell to around 40%, a far cry from the 71% dominance it enjoyed earlier in the year, and its lowest dominance since 2017.
What’s going on here? Has Bitcoin lost its mojo, or is it just a temporary problem?
Looking back at 2017 might provide a clue. You might remember that year was when initial coin offerings (ICOs) were becoming blockbusters and the cryptocurrency world was frantically acquiring Ethereum to buy new tokens and then trading those tokens to buy even more Ethereum. But then the ICO bubble burstdemand for Ethereum plummeted, with many abandoning their altcoins altogether and returning home to Bitcoin.
We may be seeing the first stage of a similar cycle right now. As the Wall Street Journal noted in an article this week about “Why Bitcoin Price Stagnated at $50,000“the recent breakout of altcoins has been fueled in part by the frenzy around NFTs, which are mainly purchased with Ethereum, but can also be purchased with other tokens such as Solana. This means that another crash in the NFT market could trigger a hangover like the one that followed the ICO bust and a flight back into Bitcoin.
There are other clues that the altcoin surge might not be sustainable. These include an increase in the price of tokens like Cardano (now the Coin No. 3 by market capitalization), which is mounting an exaggerated narrative that not paired yet for any increase in real-world users, and in XRP and Litecoin, which are first-generation crypto assets that have done little lately to justify a higher value. All of this led JPMorgan to write a research note stating: “The share of altcoins looks quite lofty by historical standards and, in our opinion, is more likely a reflection of retail investor ‘mania’ and froth rather than a reflection of a structural uptrend.” “.
That is the bearish case for altcoins: their prices are inflated by a sugar high, and when a correction comes, Bitcoin will return to its longtime dominance. But I think something is different this time.
While NFTs are helping to increase the price of altcoins, the comparison to the ICO era only goes so far. In the 2017 bubble, speculators poured their money into hundreds of projects that didn’t even exist yet (and in many cases don’t exist yet). This time, people are buying real assets in the form of art, albums, sports collectibles and more. Yes, speculators are inflating the price of many NFTs, and the market could experience a major correction, but it is also clear that NFTs are more than just a lottery ticket: they are passports to large and growing communities that are ready to be for the next few years.
Meanwhile, the cryptocurrency boom of 2021 is much broader than NFTs. It is also being fueled by rapidly evolving DeFi markets, stablecoins, DAOs, and a myriad of infrastructure projects that are transforming everything from finance to the internet. The foundations of crypto are stronger than any previous period in crypto history. That means the value of many tokens, especially those pegged to blue chip projects—should hold.
So where does this leave Bitcoin? In 2017, we heard predictions of a sea change where Ethereum would overtake Bitcoin. That change never happened back then, and it’s unlikely to materialize now. Bitcoin remains the original, battle-tested cryptocurrency owned by too many people to give up its place at the top. Its appeal as a buy-and-hold investment (digital gold) is its main use case at this point. That said, the days of Bitcoin dominating 70% of the market and anything else considered a lesser “altcoin” could be done forever. In fact, there is a good chance that by the end of 2023 crypto circles will have retired the “altcoin” moniker altogether.
This is Roberts on Cryptoa weekend column from Decrypt’s editor-in-chief Daniel Roberts and Executive Editor of Decrypt jeff john roberts. Sign up for the Decrypt Debrief Email Newsletter to receive it in your inbox in the future. And read last weekend’s column: If you don’t buy this NFT we will kill this dog.
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