For First Time, Bitcoin Accounts for Less Than Half Of Market Cap Of All Cryptocurrencies

For the first time, Bitcoin’s market capitalization as a percentage of all cryptocurrencies has dropped to below 50%.

It is a symbolic turning point for the first cryptocurrency, which for a long time accounted for more than 90% of the value of all blockchain-based assets combined, particularly through a period when so-called alt-coins that were only minor tweaks to bitcoin proliferated.

Its market capitalization then comprised over 80% of all cryptocurrencies for years, a range that held true until two months ago when it dipped below 80% and not only did not recover but did a quick dive straight down.

Coinmarketcap.com

Screenshot from Coinmarketcap

Several factors are driving the drop from its status as the clear leader.

1. Bitcoin’s development is stalled.

A more than two-year-long saga has left progress on its network stymied, a topic I’ve covered here, here, here (show notes for a podcast discussion on the topic) and here. With the various factions unable to compromise and no clear method for moving beyond the impasse, the network has been stuck staring down the same question of how to expand the network to accommodate more transactions that it first faced in early 2015. Meanwhile, as no decisions get made, transaction fees have risen from about 11 cents a year ago to $1.70 now, and the time to confirm a transaction has nearly doubled to almost 20 minutes. Because the community has been unable to resolve its divisions, some of the technological advances people were excited to see on bitcoin will be adopted on other tokens, such as Litecoin, which could emerge as the payment token, while bitcoin evolves more into a digital gold, because its software will only ever release 21 million units.

2. Ethereum continues to grow.

Ethereum has, for a while, been the cryptocurrency with the second-largest market cap, but in recent months, its greater rise has further has eroded bitcoin’s dominance. While throughout 2016, its share of the market cap of all cryptocurrencies was in the single digits, it has, in the last couple months, inched closer to 20% as its price has risen from $8 in early January toward $100 in recent days.

3. New ICOs add value to the crypto space every day.

Third, a wave of new cryptocurrency launches in crowdsales called initial coin offerings (described in my profile on Coinbase and the subject of my latest podcast) has so far raised $380 million for new networks that have functions beyond just currency. For instance, a few new storage coins aim to facilitate payments between computers needing more storage space and computers with excess drive space to offer in networks like Filecoin, Sia and Storj. Meanwhile, Golem Network Tokens are used for payments between computers that need extra computing power to, say, train a machine-learning algorithm, and computers that have spare GPU and CPU cycles to offer while its owner sleeps. So many new tokens with uses different from bitcoin’s are bound enlarge the pie, but still narrow its dominance.

4. Speculation is driving up the value of all tokens.

Because the ICOs are proving to be such an easy way to crowd fund, they are also being used just as that — as an easy way to raise money — for projects for which tokens don’t even particularly make sense, as well as scams. Speculation is also running rampant as investors who don’t understand the technology or what makes a token valuable snatch up both promising as well as poorly conceived tokens. One project that raised eyebrows recently was a crowdsale of Gnosis tokens, which, because of the way the ICO was designed, left Gnosis, which is only in beta and doesn’t yet have a product to offer consumers, with a valuation of $300 million right after its ICO. Now, speculative trading has now multiplied its valuation to $1.2 billion.

5. Ripple is seeing a big spike.

While the other trends have been driving bitcoin’s share of all cryptocurrency market caps down broadly, what appears to have finally tipped bitcoin below the 50% mark is the 24% surge of XRP, the token of the Ripple network, in the last 24 hours. Since Chinese regulators began enforcing basic know-your-customer, anti-money-laundering procedures earlier this year, Japan has overtaken China as the country with the highest crypto trading volume. XRP is popular in Japan, and one writer surmises it is because of the work Ripple does in Japan, such as through its joint venture, SBI Ripple Asia, with SBI Holdings.

7. Tezos is about to launch.

Okay, so this last one might not have pushed bitcoin below the 50% threshold, but it is likely to help keep it below that threshold. Tezos may be one of the most anticipated ICOs, about to launch in June and stay open for two weeks. The code is written in OCaml, a language that has the ability to formally verify smart contracts to ensure that they execute as the creators intended them to. Tezos is also generating excitement because the software has, built into it, a mechanism for resolving issues such as the scaling debate in bitcoin. Therefore, even if bitcoin exceeds 50% market share for now, it will likely again fall under that threshold once the Tezos ICO begins.

Tuesday, May 16, 1:10pm EST: This post has been updated to reflect that Tezos announced overnight that it is delaying its ICO, which was set to launch Monday, until June. (More details here.)

I host theUnchainedpodcast(Google Play, iHeartRadio,iTunes, Stitcher,TuneIn) & wroteThe Millennial Game Plan. Disclosure: I own somebitcoin & ether.

https://www.forbes.com/sites/laurashin/2017/05/16/for-first-time-bitcoin-accounts-for-less-than-half-of-market-cap-of-all-cryptocurrencies/amp/