Bitcoin’s Market Dominance is More than 80% According to a New Study
Bitcoin’s dominance in the Crypto market has been a topic of debate, with many arguing that Bitcoin’s market cap has drastically reduced due to the advent of Altcoins and further reduce as Alts increase in value. Bitcoiners argue that Bitcoin’s dominance is higher than general data points due to the absence of a pre-mine, higher liquidity and deeper penetration in exchanges.
A recent report by researcher John-Paul Thorbjornsen concludes that Bitcoin’s dominance in the Crypto market is greater than 80%. Currently, the most cited data source in Crypto is Coinmarketcap. According to CMC, Bitcoin’s dominance is 50.6% followed by Ethereum 10.3% and XRP 9.2% with the rest of Cryptocurrencies sharing almost 30% market share.
Market cap on CMC is calculated by multiplying the Price of the coin with its total circulating supply, John Paul argues that market cap is a lamented metric as the data can be easily manipulated by things such as “low volume, pre-mines and circulating supply malfeasance.”
John-Paul in his report maps the Crypto market cap with the widely known Pareto distribution chart (According to the Pareto Principle: “80% is owned by the 20%, 20% is owned by the 80%”) only to find that the charts are not event closely aligned. Many coins have larger market caps with insignificant daily volume which shows the lack of liquidity and the bloated price of the coin.
“Low volume in some coins was indicative of a trapped market, and artificial market cap — some coins had less than 0.1% of their market cap in daily volume, compared to the Top 10, which all had >30% in volume/cap; a difference of more than two factors.”
John-Paul introduces a new metric called “Volume-Weighted Cap” to overcome this problem. The graph looks a lot different when mapped with the new metric, the market spread strongly adheres to the Power Law distribution where Bitcoin’s dominance is much greater.
“It is clear that Bitcoin is the dominant currency when taking liquidity into account. In terms of share, it is consistently over 80% and trending up.”
According to the graph, the top 5 Cryptocurrencies captures 85% of the market share, thus it is a Pareto Distribution that is much stronger.
In my view, the Volume-Weighted Cap is also not very accurate as there is a high probability that most of the volume displayed on Coinmarketcap comes from exchanges that fake their volume. A recent report by Bitwise concluded that nearly 95% of Bitcoin Trading Volumes reported on Unregulated Exchanges are Fake many of which are listed on Coinmarketcap.
The data should be refined eliminating fake volume and then mapped to get a more accurate result. Nevertheless, there is no doubt that Bitcoin’s dominance is much higher than 55% as shown on CMC.
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