The largest cryptocurrency bitcoin, which started trading from around $0.08 per coin in July 2010, has gradually witnessed a decline in its share in the overall market cap of cryptocurrencies globally. From as much as 94 per cent market cap dominance back in May 2013, bitcoin’s share declined to 86 per cent in February 2017 before it plunged to 37 per cent in June during the same year, according to the data from CoinMarketCap. However, as more investors started to invest in it with its growing awareness and potential towards wealth creation, the cryptocurrency managed to regain the lost market cap share to up to 61.11 per cent as of March 1, 2021. The overall decline in the past nearly eight years for the crypto king has been 35 per cent. Nonetheless, the reasons behind this fall are more than just the mere proliferation of altcoins (alternative digital currencies to Bitcoin) over the years.
“More than just new coins coming in, the market size of crypto has been increasing in general even as there is more investor confidence that bitcoin is now not the only asset to invest in and there are other utility tokens one can look at and get better returns. Also, investors are diversifying their crypto portfolio wherein they are putting 60-70 per cent of their money in bitcoin and rest in altcoins,” Nischal Shetty, CEO of Bitcoin exchange WazirX told Financial Express Online.
The number of new altcoins has increased to 8,655 so far with Ethereum, Cardano, Binance Coin, Tether, Polkadot, XRP, Litecoin, Chainlink, Bitcoin Cash, and more leading the top-10 tally in terms of the market cap, showed CoinMarketCap data. As of March 1, 2021, the market share of these nine altcoins stood at 11.84 per cent, 2.97 per cent, 2.37 per cent, 2.54 per cent, 2.25 per cent, 1.37 per cent, 0.80 per cent, 0.74 per cent, and 0.62 per cent respectively. “Simply the availability of new coins as an option isn’t the only reason for the decline in Bitcoin’s market cap. The crypto asset class has broadened significantly.”
In 2016, the biggest alternate Ehereum was starting to attract investors because of the vast power of its blockchain technology that was beginning to be demonstrated. The average price of an Ether token in 2016 was around $10 and there weren’t as many in circulation. Other popular crypto assets like BAT and USDT were either in their infancy or not even launched yet. Bitcoin had less competition in 2016. Now Ether is above $1000 and more popular. “It’s a bit like when Tesla was the only electric car maker compared to now when everyone seems to be going electric. So, the decline in market share isn’t because of a decline in enthusiasm for Bitcoin, which has gone from under $1,000 in 2016 to over $40,000. It’s because of exponential growth in crypto as a broad asset class. Both Bitcoin and its children are doing better than ever,” Vikram Rangala, CMO, ZebPay told Financial Express Online.
The decline in bitcoin’s market cap is also attributable to multiple projects being executed on platforms beyond its own. For instance, smart contracts, lending, banking, loyalty reward system, role-playing gaming, wallets, and more. Bitcoin was the most popular coin and still is, however as the industry is growing new projects are joining the ecosystem. The awareness in crypto investments that was brought by bitcoin is now being leveraged by other innovative projects” There is Ethereum-based smart contracts, Cashaa for banking, Nexo for lending, Ripple for offering an alternative to SWIFT international payment network, etc.,” Kumar Gaurav, Founder and CEO of online banking platform for cryptocurrencies Cashaa told Financial Express Online.
According to cryptocurrency exchange CoinDCX’s Co-founder and CEO Sumit Gupta, the market cap movement of Bitcoin as a correction is on expected lines. “These are cyclical processes and will continue. In fact in 2017 too, we had witnessed a similar case happen with Bitcoin. We expect it to recover soon and touch a new high in coming months.”
Importantly, unlike other cryptocurrencies, bitcoins cannot be mined forever and have a cap of 21 million out of which 18.5 million bitcoins have already been mined. Mining is referred to as a process of solving complex mathematical equations using high-powered computers to validate a block of transactions. As a reward for it, individuals, businesses, etc., are rewarded in cryptocurrencies that are validated. Essentially, solving complex computational math problems on the bitcoin network produces new bitcoin and the process is known as mining. The limitation in mining was set forth in bitcoin’s source code by its creator Satoshi Nakamoto.
“As it has a limited supply, it gains a lot of value over a period of time, so investors like to hold on to it for longer durations and is looked as an investment asset,” Monark Modi, Founder and CEO of bitcoin exchange Bitex told Financial Express Online. However, t is also important to understand the purpose of each cryptocurrency. While bitcoins were created to make secure payments across a peer-to-peer network and to eradicate any third party involved, other cryptocurrencies such as ether were created to enable decentralized applications and to create smart contracts. “With the growing use of blockchain, the market share for other cryptocurrencies will increase. These factors are essential for the decrease in bitcoin’s market share in the past few years,” he added.