Most major cryptocurrencies like Ethereum and Ripple’s XRP have been struggling to make gains all year despite Bitcoin’s surge in 2019. That’s only half the story though—in fact, Bitcoin’s dominance may be even higher than we realize.
Bitcoin has been dominating the cryptocurrency market in 2019; this much is obvious. At the time of writing, dominance according to CoinMarketCap appears to be approaching almost 70%. However, shock research suggests that this number is likely much higher. In fact, it may be above 90%.
A Volume-Weighted Metric
Yes, Bitcoin’s dominance is possibly above 90%. Researchers at Arcane Research have conducted a study where they adjust Bitcoin’s dominance for liquidity. Market capitalization is calculated not at face-value but is instead volume-weighed. Altogether, when adjusted, Bitcoin’s dominance rises well over 90% with remaining major cryptocurrencies, and the rest of the market, making up less than 10% combined.
Bendik Norheim Schei, an analyst at Arcane Research, concludes that the findings prove that “everyday bitcoin stays ahead, it becomes less likely that any other cryptocurrency can compete as money.” Schei makes the case that calculating market capitalization without also taking into account liquidity makes no sense.
Premined coins can easily be distorted, thus making it seem like they have more considerable market influence than they do. This, argues Schei, ultimately inflates the total market capitalization beyond what is reasonable. “One might be able to sell one token for three dollars, but what happens if you want to sell 1 million?” he says. Ultimately, “market capitalization becomes a meaningless measure” when trading volume is ignored.
Correcting the Record
The shocking findings should put a wrench in our current metrics. Frankly, CoinMarketCap should consider updating its numbers and excluding cryptocurrencies with low trading volume from its calculation.
A similar controversy occurred earlier this year when BitWise demonstrated that 95% of cryptocurrency trading is ‘fake.’ Although CoinMarketCap responded to the report directly, it has yet to really update any of its data. Given that cryptocurrency trading volume on exchanges is so inflated, it should not surprise us that the dominance of most altcoins is also inflated. Knowing this, Bitcoin’s dominance being at 90% shouldn’t surprise you.
However, as Schei says, the findings should not lead us to believe that Ethereum and Ripple’s XRP are without use. In fact, it’s impossible to compare these projects with Bitcoin because they fundamentally address different problems. As it stands now, Bitcoin has proven itself as the best candidate for ‘money,’ but there are still many other areas where cryptocurrencies can have a real impact.
Do you agree with the findings that most Bitcoin dominance is actually above 90%? Let us know your thoughts below.
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