Bitcoin Dominance Crashes After XRP Win

Bitcoin Dominance Crashes After XRP Win

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Bitcoin’s dominance in the cryptocurrency market has experienced a significant tumble following the United States Securities and Exchange Commission’s (SEC) partial loss in its lawsuit against  Ripple Labs, the creator of ripple (XRP). The recent court victory for the crypto company, in which the SEC’s claims that XRP is a security were (mostly) rebuffed, has triggered a surge in altcoin prices, causing bitcoin’s market dominance to briefly fall below the 50% mark.

Understanding Bitcoin Dominance

Bitcoin dominance refers to the measure of the percentage of the total market capitalization of the cryptocurrency market that is accounted for by bitcoin. It is calculated by dividing the market cap of bitcoin by the total market cap of the entire crypto market share.

In the early years after its launch in 2009, bitcoin was the sole digital asset and accounted for the entire crypto market’s capitalization. However, as time passed, the crypto landscape started to change.

The emergence of altcoins began in 2011 with the introduction of litecoin and namecoin, diversifying the total cryptocurrency market cap. Then, in 2015, ethereum was introduced and quickly became bitcoin’s closest competitor and introducing its native currency, ether. 

In 2017, initial coin offerings or ICOs became an incredibly popular way to launch a crypto and raise funds for all kinds of projects. The boom of hundreds of new tokens further diluted BTC dominance, causing it to hit an all-time low. However, it later rebounded and climbed back above 50% within a few months after the ICO bubble popped and investors retreated to the relative security of bitcoin.

Today, bitcoin dominance faces significant competition from various sectors of the cryptocurrency industry, such as ethereum and the rise of DeFi (decentralized finance), NFTs (non-fungible tokens), metaverse tokens, and more than 20,000 altcoins.

These new and diverse tokens have contributed to the fragmentation of the crypto market and challenged bitcoin’s dominant position. As the crypto landscape continues to evolve, BTC dominance will continue to be influenced by the rise and development of various alternative cryptocurrencies.

SEC’s Claims and Ripple’s Victory

The SEC’s legal battle against Ripple Labs immediately grabbed the crypto community’s attention for more than two years. The regulatory agency accused the company of selling XRP, which it claimed was an unregistered security, threatening to set a precedent for other altcoins.

However, in a partial victory for Ripple Labs, the SEC’s claims were rebuffed, providing relief to XRP and the wider altcoin market. The court found that XRP was not a security when sold to the general public. However, it also ruled that it was a security when sold to institutions so Ripple Labs may still be on the hook for a large fine.

Fueled by Ripple’s win, the altcoin market experienced a notable surge. XRP price skyrocketed by 83%, while other prominent altcoins like ethereum, cardano, solana, polygon, and stellar also witnessed significant gains.

Many of these tokens bounced back particularly hard because they fell on a list of 68 cryptocurrencies that the SEC claimed are securities in its lawsuits against 2 of the largest crypto exchanges in the world: binance and Coinbase. After XRP’s win, most of these tokens are less likely to be found as securities, causing their prices to spike.

This rally, often dubbed “altcoin season,” caused bitcoin dominance to fall below the critical 50% mark.

The Fall of Bitcoin Dominance

BTC dominance, which represents bitcoin’s proportion of the total crypto market cap, had recently climbed above 50% after a two-year dry spell. However, in the aftermath of Ripple Labs’ court victory, altcoins have rallied, leading to a dip in bitcoin dominance. 

Bitcoin recently broke through 50% dominance after a slow rally in June but the XRP win caused it to precipitously crash back below 50% the same day.

The crypto community is buzzing about the return of  altcoin season,” attributing the surge in altcoin prices to the belief that altcoins may be safer from being labeled securities by the SEC. This sentiment has led to a shift away from bitcoin towards alternative digital assets.

Data from Kaiko Research indicated an 8% decline in BTC volume dominance across the 25 largest exchanges. It reached its lowest point since April, currently standing at a mere 27%.

A graph showing bitcoin dominance
Bitcoin dominance | Courtesy of Kaiko

The situation is even more noticeable on offshore exchanges, where BTC trading activity has sharply declined by 20%. This can be partly attributed to the surge in South Korean altcoin volume, as traders and investors show a growing interest in altcoins over bitcoin.

A graph showing bitcoin dominance
Bitcoin dominance | courtesy of Kaiko

Is The Altcoin Rally Sustainable?

While the recent altcoin rally has been noteworthy, it remains to be seen if it is sustainable in the long term. Bitcoin’s dominance has fluctuated in the past, and altcoin rallies have been met with volatility in both directions. The market currently lacks a clear catalyst, and the full impact of the SEC’s rulings on altcoins may unfold over the coming months.

The report suggests that while volumes have increased, they still remain below the average seen in previous years. The market is particularly vulnerable to shifts caused by factors such as U.S. government actions and Bitcoin miners‘ selling behavior.

Bitcoin’s Future Outlook

It is difficult to say what the future holds for bitcoin dominance. However, it is possible that the trend of declining dominance will continue. As the cryptocurrency market matures and more altcoins are created, investors may be swayed by the increasing number of attractive altcoins. This could lead to a further decline in Bitcoin dominance.

It is also likely that bitcoin dominance will rebound to some degree but it may never reach its former glory. This often happens during market crashes and investors sell their risky altcoins and flock to the relatively safer bitcoin.

Moreover, despite the decline in bitcoin dominance, the community and financial analysts are bullish because of the potential of massive ETF-related inflows and the upcoming halving event. If the SEC approves spot ETFs for bitcoin, it could attract more investment, especially from institutions.

Overall, only time will tell what the future holds for bitcoin dominance. However, the recent decline in the metric is a significant development for the cryptocurrency market and one that investors should keep an eye on.

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