Bitcoin’s dominance, a measure of bitcoin’s value compared to the wider cryptocurrency market, is hovering around 70% after climbing this year, according to CoinMarkCap and most traditional measures—a level not seen since April 2017.
The bitcoin price has been treading water over recent months after surging higher earlier this year as many bitcoin rivals, including ethereum, litecoin and Ripple’s XRP, struggled to make similar gains.
However, the market may be even more weighted towards bitcoin than previously thought, with shock research suggesting bitcoin’s real dominance may be above 90%.
Researchers found that if bitcoin’s dominance is adjusted for liquidity by calculating the volume-weighted market capitalization it soars to over 90%, reducing the rest of the cryptocurrecy market, including major tokens ethereum, Ripple’s XRP and litecoin, to a combined less than 10%—and making their ultimate success more unlikely.
“Every day bitcoin stays ahead, it becomes less likely that any other cryptocurrency can compete as a money,” warned Bendik Norheim Schei, an analyst at Arcane Research, who carried out the study.
“That is important to understand not only for investors and those building out payment infrastructure, but also those building out solutions leveraging the security of a public blockchain.”
Bitcoin currently has a market capitalization of $180 billion, compared to ethereum’s $20 billion, litecoin’s $4.5 billion, and $11 billion for Ripple’s XRP.
However, Schei argued that market capitalization without considering liquidity is meaningless.
“The main reason is that one could easily create a cryptocurrency with 1 billion premined coins, and do one trade at say three dollars each,” Schei wrote. “This would lead to a total market capitalization of $3 billion, which would represent 1% market dominance with today’s valuations and inflate the total market capitalization.”
“The problem is that the calculation does not take liquidity into account. One might be able to sell one token for three dollars, but what happens if you want to sell 1 million? Without accounting for liquidity, market capitalization becomes a meaningless measure.”
Researchers found similar results when looking at the 10 exchanges identified by Bitwise as those having “real” (not wash trade) volume and if using volumes as recorded on CoinMarketCap, excluding stablecoins.
However, researchers were keen to stress the data doesn’t mean the likes of ethereum, litecoin, and Ripple’s XRP are without use or value.
“It is notoriously difficult to compare and contrast different projects targeting different niches,” Schei wrote.
“Every quantitative measure will at best be a proxy and always brush over important qualitative differences. For crypto, one could argue that the whole idea of measuring the relative strength of different coins and tokens falsely implies a competition between complementary solutions.”