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Bitcoin vs Altcoins: Why does bitcoin dominate the crypto market?

As more cryptocurrencies come into existence, what has allowed bitcoin to remain the dominant cryptocurrency with the largest market capitalisation? Gabriele Giancola, CEO and Co-founder of qiibee, a Swiss firm enabling brand loyalty programs on the blockchain, looks at the factors which have contributed to bitcoin’s surge in popularity, despite its volatility.
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Bitcoin was the first cryptocurrency

In October 2008, a white paper proposing a peer-to-peer electronic cash system was published under the name of Satoshi Nakamoto.

Satoshi still remains an unknown figure, but the paper and the ideas it contained has taken off in a big way in the past 10 years.

The peer-to-peer electronic system proposed in that specific paper was bitcoin — a term, payment method, and investment mode that started to grow within certain sectors for almost a decade before hitting mainstream popularity in late 2017.

Bitcoin may have been the first cryptocurrency, but many alternative coins, also known as Altcoins, have used the framework provided by bitcoin to break into the cryptocurrency game.

As more altcoins appear on the market, what sets bitcoin apart and makes it the dominant cryptocurrency?

Reasons for bitcoin’s dominance

With sectors that are new and innovative, first mover advantage is key, which worked in bitcoin’s favour. In a 2009 post titled, 'Bitcoin open source implementation’ Satoshi Nakamoto highlighted the root problems with centralised conventional currency, and how strong encryption could offer a solution.

“It’s time we had the same thing for money. With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transaction effortless,” said Nakamoto — this statement still applies to the many decentralised, adaptive, and innovative altcoins that have come to be following bitcoin’s mainstream adoption.

Other aspects that speak to bitcoin’s dominance within the cryptocurrency market include its stability, confidence, and accessibility. Following bitcoin’s price surging to an all-time high of $20,000 in the fourth quarter of 2017, the crypto market has since reflected a slight correction.

However, even when markets are not doing well, , the price of bitcoin tends to be more stable than other altcoins. Despite its peaks and troughs, bitcoin is still relatively stable compared to fiat currencies which experience hyperinflation, including the Venezuelan Bolivar.

According to the International Monetary Fund (IMF), Venezuela’s hyperinflation is on its way to hitting 1,000,000% by the end of 2018.

Confidence in the bitcoin name is also a factor that lends credibility to its dominance in the crypto market.

As the first cryptocurrency, it has years of ‘experience’ under its belt, has faced adversity but continues to forge the way, and was the crypto brainchild of the paper on peer-to-peer electronic systems which is now internationally renowned.

Moreover, it is also the most immutable ledger with strong network effects, combined with an increasing hash rate which inspires confidence in the decentralised digital currency.

Bitcoin is also the most widely accepted cryptocurrency, with a slew of big retailers including Overstock.com, Expedia, PayPal, and Microsoft accepting it as payment.

This shifts the attention to accessibility to merchants and outlets that accept bitcoin, and the feasibility of using it as a method of payment. The liquidity of bitcoin can also be seen as a valuable feature of the cryptocurrency.

At present, the bitcoin dominance index, a technical measure of bitcoin’s percentage of total cryptocurrency market share by market capitalisation, now stands at just over 50%.

When looking at the cryptocurrency market, some trends are recurring. Generally speaking, when the dominance index of bitcoin is low, the market is in a downturn and when it is high, the market enters a bullish phase.

The resilient nature of bitcoin is a testament to its dominance: despite the 78% correction in the valuation of the overall cryptocurrency market this year, bitcoin remains the top coin, while its altcoin competitors are still seeking to recover fully from the market downturn.

Where does bitcoin go from here?

As applications for bitcoin exchange-traded funds (ETFs) were recently rejected by the U.S. Securities and Exchange Commission (SEC), it has put a dampener on the cryptocurrency market.

If ETFs are approved in the future, they will undoubtedly change the way traditional financiers view the crypto sector.

This swing could significantly boost the price of bitcoin as we can expect increased interest from institutional investors and traditional investors are likely to use it as an investment vehicle to diversify their portfolios.

Looking at factors that could curtail bitcoin’s dominance, research carried out by a team from City University in London suggests that bitcoin may not reign supreme in the future, and predicts that bitcoin’s market share will fluctuate at approximately 50 percent by 2025.

Strong altcoins competitors such as Ether, with recent regulation on their side, are also biting at the heels of the bitcoin giant.

Areas which bitcoin can improve on in order to maintain its standing as the dominant cryptocurrency, include improvising on fundamentals in order to make the coin more user-friendly.

Transaction speed and cost are two areas which are currently thorns in the side of bitcoin users.

These two examples are issues which need to be resolved in order to onboard more users to utilise bitcoin as a method of payment in the long run.

Calculating the direct path of bitcoin within the ever-changing cryptocurrency field is a challenge.

As specialised, more niche altcoins come on the market, it will be interesting to see how they are received by potential investors.

Amongst the crowded cryptocurrency landscape of the future, even if its dominance slips, don’t people always remember the first?

Bitcoin is the founding father and financial innovation that laid the groundwork for what is now the wider cryptocurrency landscape as we know it today, and it won’t be easily forgotten.

 

 


 

About Gabriele Giancola

Gabriele Giancola is the Co-founder and Chief Executive Officer of qiibee, the Swiss loyalty token protocol helping brands around the world run their loyalty programs on the blockchain. A serial entrepreneur, Gabriele has co-founded multiple companies including gratis-auto.ch, a start-up focused on mobile outdoor advertising, and a mining farm with around 60 miners.

Gabriele holds a Masters in Business Management from the University of St. Gallen in Switzerland, one of the world's top ten universities for business management.

About qiibee

qiibee, the Swiss loyalty token protocol, helps brands around the world run their loyalty programs on the blockchain. Founded in 2015 by Gabriele Giancola and Gianluca Giancola, qiibee builds on strong expertise, existing partnerships, and in-depth knowledge of the loyalty sector.

qiibee’s blockchain plug-and-play solution supports businesses, giving them full flexibility to create their own loyalty programs on qiibee’s protocol. For more information, visit https://qiibee.com

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