Bitcoin, the original cryptocurrency, has continued its reign of dominance in the crypto markets since it first started. Its first-mover advantage, deep embeddedness, occupations of developmental and institutional adoption, and general brand recognition have made sure that Bitcoin is the king of crypto. The emergence of thousands of alternative cryptocurrencies, or altcoins, has raised questions about whether Bitcoin's reign will ever be challenged. This article will take a close look at what’s pushing Bitcoin’s dominance. It examines possible scenarios for altcoins long-term and offers investor tips on how to approach today’s market.
Factors Contributing to Bitcoin's Dominance
There are good reasons for Bitcoin to persist as king of the cryptocurrency hill. These range from its adoption rate, investor sentiment, and regulatory environment to its inherent characteristics.
Adoption, Sentiment, and Regulation
The more people or entities that hold Bitcoin as their preferred asset, the higher its market cap becomes, reinforcing its superiority. The positive feedback loop of the network effect compels new users to flock to the Bitcoin network. Its liquidity and widespread adoption ensure that Bitcoin is a highly convenient and reliable store of value.
Investor sentiment is a major mover of Bitcoin’s price, and thus its market cap position. If there is positive news about an asset, such as big institutional adoption or regulatory approval, new demand flows in and increases demand, sending its price higher. On the flip side, unfavorable developments, like government regulatory enforcement or hacks of major exchanges, can lead to widespread sell-offs and suppress market momentum.
Additionally, the regulatory environment has a significant impact on Bitcoin’s dominance. Supportive regulations can foster investment and innovation. Hostile regulations can suffocate growth and drive investors to other assets. The recent approval of Spot Bitcoin ETFs is an important illustration of such a positive regulatory climate.
Visibility, Availability, and Deflationary Supply
Bitcoin will never need to market itself. Combined with its name recognition and pervasive media coverage, this creates the perfect asset for crypto space beginners to flock to. Bitcoin is listed on virtually every single crypto exchange in existence. Investors around the world can too, through services offered by brokerages such as Spot Bitcoin ETFs.
Bitcoin’s deflationary supply Bitcoin’s monetary policy is based on the issuance of a limited supply of newly minted coins, 21 million in total. Combined with its halving mechanism that periodically slows the creation of new Bitcoin, Bitcoin is a very scarce asset. This increasing scarcity, combined with growing demand, has led to its long-term price appreciation throughout history.
The Allure of Altcoins: Challenging Bitcoin's Supremacy
Bitcoin has been the most prominent cryptocurrency for ages. Altcoins introduce special purpose features and functionalities that could threaten its dominance. These are scalability solutions, energy-efficient consensus algorithms, interoperability solutions, smart contract advancements, and privacy features.
Altcoin Seasons and Market Dynamics
Altcoin seasons usually only happen when Bitcoin goes through a cooling-off period. When Bitcoin’s price calms down, it usually triggers altseason. Unbelievably, investors can’t wait to pile into altcoins, chasing more gainful returns. Historically, these periods have been incredibly bullish for altcoins, which tend to outpace Bitcoin on their way up, sometimes by an incredible amount. These alt seasons of 2020-2021 are especially astonishing. They exploded onto the scene during the coronavirus pandemic, fueling retail investor and crypto enthusiast interest in exploring options outside of Bitcoin.
It is worth pointing out that altcoins are usually much more volatile than Bitcoin. Even when Bitcoin is in a bull market, altcoins will often do the same—but to the upside and downside at much higher volatility. In a bear market for Bitcoin, altcoins will often suffer a worse downturn, while others might outperform Bitcoin and gain relative value. The 2017 bubble took the recently built altcoin market to its extreme, exposing the fundamental volatility that permeates this market.
Technological Advancements in Altcoins
- Scalability solutions: Implementing scalable solutions such as sharding, sidechains, or layer 2 scaling solutions like Optimism or Polygon, can increase transaction capacity and speed, making altcoins more attractive to users.
- Energy-efficient consensus algorithms: Transitioning to energy-efficient consensus algorithms like Proof of Stake (PoS), Delegated Proof of Stake (DPoS), or Proof of Capacity (PoC), can reduce energy consumption and make altcoins more environmentally friendly.
- Interoperability solutions: Developing interoperability solutions like cross-chain bridges, atomic swaps, or blockchain-agnostic protocols, can enable seamless interactions between different blockchain networks, increasing the usability and value of altcoins.
- Smart contract advancements: Improving smart contract functionality, security, and usability, can enable more complex and innovative decentralized applications (dApps) to be built on altcoin platforms, attracting more developers and users.
- Zero-knowledge proofs and privacy features: Integrating zero-knowledge proofs and other privacy features, can enhance the security and anonymity of altcoin transactions, making them more appealing to users who value privacy.
Navigating the Crypto Market: Investment Strategies
Here are some potential investment strategies for navigating the current market:
Asset Allocation and Dollar-Cost Averaging
First step on the road to smart investing — learn the importance of asset allocation. This involves allocating across multiple asset classes, which will help diversify and mitigate risk in your investment portfolio. This strategy means committing to investing a set dollar amount over time, no matter what the market is doing. For instance, chf 625 per week in bitcoin over a period of six months.
ETFs and Technical Analysis
Go long with ETFs that track the price of Bitcoin and other cryptocurrencies. This strategy provides the most diversified exposure to the market while helping you minimize risks associated with individual altcoins.
Examples include:
- Moving Average (MA) Crossovers: Using two MAs with different time periods to identify trends. A "golden cross" occurs when the shorter MA crosses above the longer MA, indicating a potential buy signal, while a "death cross" occurs when the shorter MA crosses below the longer MA, indicating a potential sell signal.
- Relative Strength Index (RSI): A calculation of the profitable price closes relative to unprofitable price closes, reflected as a percentage, to identify overbought or oversold positions.
Ultimately, will altcoins ever recover their crown? Miles O’Connor thinks Bitcoin’s dominance is undeniable, but the crypto landscape is always changing. Altcoins that have developed proven technologies with strong use cases can establish their own footholds. Though they currently lack the institutional support to dethrone Bitcoin, in the long term they could threaten its supremacy. To be clear, investors need to be on high alert before making any investments tied to cryptocurrencies. Do your homework up front, as the market is hugely volatile and unpredictable.
