Sentiment observed from Bitcoin’s share of the market capitalization of cryptocurrencies

Bitcoin (BTC) makes up 64% of the market capitalization of the entire cryptocurrency market, accounting for an outstanding share compared to altcoins (collective term for cryptocurrencies other than BTC). In the past, however, the share fell to the 30% range. BTC’s share of market capitalization is one of the methods used to measure sentiment in the cryptocurrency market. Let’s look back at past trends of the BTC price and its share of market capitalization.

 

During the period from the advent of BTC until around January 2017, BTC accounted for 80%-90% of the market capitalization of the entire cryptocurrency market. However, this market balance collapsed when money started to flow into altcoins in January 2017 on the back of a hike in the BTC price and a sharp increase in Initial Coin Offering (ICO) projects. A rapid and simultaneous increase in the market capitalization of altcoins (especially Ethereum [ETH]) resulted in a sustained fall of BTC’s share of market capitalization. This happened when risk-on sentiment increased in the cryptocurrency market where BTC’s oligopoly was eliminated due to the rapid growth of the altcoin market, which is considered to have a higher risk than BTC.

 

Although BTC’s share of market capitalization picked up temporarily during and after July 2017, attributed to an increase in the BTC price, which hit a record high, it fell sharply to the 30% range following the plunge in the BTC price in January 2018. Subsequently, BTC’s share of market capitalization remained in the 30%-40% range until August 2018. It can be argued that the market capitalization of altcoins was high. However, BTC’s share of market capitalization increased again when the number of ICO projects, which experienced constant growth in 2017, started to fall sharply in the second half of 2018. When the BTC price fell from USD 6,359 to USD 3,821 in November 2018, BTC’s share of market capitalization remained in the 50% range. Since that time, BTC’s share of market capitalization has remained high in the 50%-60% range; the cryptocurrency market has shifted to a risk-off phase following the drop in the BTC price in January 2018 and a decline in the popularity of ICOs.

 

When the BTC price was near the USD 10,000 level in January-February 2020, BTC’s share of market capitalization was falling ahead of the drop in the BTC price. It can also be considered that there was a risk-on sentiment in the market during this period, due partly to a rise in the BTC price driven by an increase in the BTC-denominated price of many altcoins. When the BTC price started falling on February 24, BTC’s share of market capitalization increased again, albeit slightly, showing that investors remain in a wait-and-see mode before BTC halving in May.

 

From a long-term perspective, attention should be paid to the fact that BTC’s share of market capitalization fell from 80%-90% before and during 2017 to the 60% range in April 2020. While the BTC price continues to affect the entire market, the market capitalization of altcoins has grown along with BTC, and so has its market share. Whether or not the advent of new cryptocurrencies will change the current situation where BTC is the sole dominant option is a key focus as we forecast the prospects of the cryptocurrency market as a whole.

 

※This article was written by FISCO.