Altcoins rise as Bitcoin's dominance wanes?

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The most characteristic and unknown charts around Bitcoin and cryptos is the one that shows us Bitcoin's dominance by size in relation to other cryptocurrencies. Everyone knows that Bitcoin is the digital currency par excellence, but how much larger it is than the rest, that's exactly what dominance shows us.

Since the strong market crash in 2022, Bitcoin has risen with hardly any pause, and its dominance over the rest of the crypto sector has increased even more steadily, going from a minimum of around 35% to 66%. In this three-year journey, its dominance only dropped during the meme coin summer, and more sharply in Christmas 2024, when the narrative that the Trump administration would be generally crypto-friendly was established, which would, of course, have a greater impact on other currencies due to their smaller relative size compared to Bitcoin. Bitcoin, however, recovered from both crises, ending the dream of a season where altcoins—everything that isn't Bitcoin—would rise sharply. Bitcoin increased its weight in the crypto sector in general to account for two-thirds of the total; that is, there was Bitcoin, and then there were tens of thousands more cryptocurrencies that together weighed half as much as Bitcoin.

For weeks it was conjectured that these altcoins might be dead and buried, replaced by another asset: Bitcoin treasury companies, companies like MicroStrategy, Metaplanet, H100, and others that since January have been the best investment related to the crypto sector. But all this changed in recent days. Crypto Week was held in Washington, United States, a week in which three framework laws were advanced to regulate everything crypto, from stablecoins to the issuance of new tokens on American soil across different blockchains. And with this news, currencies like Ethereum and XRP rose strongly, and Bitcoin's dominance suffered one of its biggest setbacks in recent months. Those who had the worst time were Bitcoin treasury companies, Metaplanet, Smarter Web, H1, MicroStrategy, and The Blockchain Group. All of them had a terrible week, which suggests that part of the money that was going into those investments has decided to move to altcoins with the expectation that the new regulation or new crypto regulations in the United States will be the definitive trigger for the long-awaited altcoin bull season.

Therefore, we need to analyze if we are indeed on the verge of one of those rebalancings that every few years move billions from Bitcoin and now also from Bitcoin companies to other tokens, starting the altcoin season. Or if, on the contrary, this movement will have less future than the marriage of the guy caught on the Kiss Cam at a Coldplay concert with his mistress. So, like if you've been wanting me to talk about other cryptos for a long time, because a classic "be careful what you wish for" is coming.

Trump, who can be criticized for many things, but not for not being an organized person, arrived at Crypto Week after setting the foreign trade agenda and the budget law for internal growth. And like someone waiting for Black Friday week to fix Christmas, he advanced in a few days everything his administration wants to achieve within the crypto sector. Specifically, he managed to get Congress to approve the Genius Act for stablecoins, the Clarity Act to regulate cryptos in general, and the AntiCBDC Act to, obviously, prohibit a state digital currency, to prohibit, let's say, the digital US dollar. The first of them, the Genius Act, came into effect on Friday with his signature.

The renewed push by the Trump administration to advance crypto and make the United States the most crypto-friendly country in the world led the sector to surpass the 4 trillion capitalization barrier for the first time in its history. That is, according to the fallible but cool metric of market capitalization, crypto currencies would today collectively be worth 4 trillion dollars, more than the GDP of the United Kingdom and more than twice the Spanish GDP. Given that GDP is also a misleading measure, I think it's a good comparison. And this rise has been concentrated, unlike previous ones that were spearheaded by Bitcoin, in altcoins, because regulation has created the expectation that this will row a lot and tokens like Ethereum or Cardano or XRP from Ripple would benefit from it. And proof of this is that Ethereum ETFs had their best week since they started trading back in 2024.

Crypto has gone mainstream, and it has done so overnight, as evidenced by the fact that Bank of America took advantage of Crypto Week to begin its coverage of the sector with a first analysis in which they explain the current situation of the crypto sector, what they expect to happen, and how to participate in it. And this, to be clear, means that from now on, Bank of America analysts—and many others will follow—will analyze the crypto market like any YouTuber or TikTok influencer, but they will certainly charge much more than any of us. And in this first analysis, their view is that regulation will bring growth, and the way to participate in it is to invest through any of these three avenues.

They propose three avenues: through digital asset platforms (blockchains), as they say Ethereum can be. This would be one way to invest in this sector. Another way would be through payment infrastructures, they mention Stripe or Shopify here. Or another way to do it would be through banks like Bank of New York Mellon, which acts and will act in this case as a custodian of the stablecoin launched by Ripple, which is behind XRP, but which also has a stablecoin called RLUSD.

Assuming that Bank of America represents the view of the crypto sector by traditional money, by traditional investment, by traditional banks, we can find in their analysis an alarming lack of a narrative that clearly benefits altcoins over third parties such as traditional banks or payment companies or others. And this gap stems a bit from the existence of a clear narrative among the main altcoins. Seven years ago, when many of them first came out, they were presented as an alternative to Bitcoin with clear advantages over its blockchain. But today, frankly, it is not entirely clear how these existing differences allow their tokens to accumulate value over Bitcoin's token. A problem that is aggravated by things like Ripple and its XRP token.

Let's talk about Ripple, because Ripple told us that XRP, the token launched by the company Ripple more than a decade ago, supposedly has a real capitalization of more than 6 trillion dollars, meaning it would be 50% higher than the crypto market in general, including Bitcoin. This risky assertion is based on a banker they know who secretly told them that, which, while comical, is also a good example of the narrative problem that accompanies all altcoins. Ripple, for example, positions itself as the company that will enable payments between different countries through its XRP token. And in anticipation of what they achieve, their token should be worth a lot. But it is not clear to any market analyst, whether from Bank of America or elsewhere, that XRP should be worth more for this, since XRP is not Ripple's shares. What Ripple the company earns does not necessarily have a direct reflection in its tokens. And XRP would not even be what they would use in this scheme to facilitate payments between countries, considering that they recently launched a stablecoin, that is, a digital dollar, to do precisely this, to move value from one place to another. And it is because of these inconsistencies that Bank of America estimates that whoever can make money here is not so much Ripple or its XRP token, but the bank that custodies Ripple's stablecoin, in this case Bank of New York Mellon.

Ethereum faces a similar problem. Bank of America's analysis explains that public blockchains like Ethereum could become the rails that allow interoperability between digital assets, which frankly is not a very different narrative from the one that accompanied Ethereum in its early days, the Decentralized Computer. However, again, it is not clear how that use case makes Ethereum the most valuable token. The greatest demand for Ethereum was seen in 2017, when the token was the entry point to investing in ICOs, in the launches of other cryptocurrencies. If you didn't have Ethereum at that time, you couldn't play, and the game was so attractive that the demand to participate led Ethereum to its all-time high against Bitcoin. An all-time high against Bitcoin that it has not surpassed since then.

Today, the potential of a situation similar to what was experienced with ICOs in 2017 is being promoted with the advance of stablecoins, which will be, and here I think we are all more or less in agreement, extraordinary with the approval of the Genius Act in the United States. The narrative circulating around Ethereum is that the use of stablecoins through the Ethereum blockchain will make its token more valuable. But again, the accumulation of value here is not obvious. JP Morgan, for example, announced the creation of JPMD, its stablecoin, and explained that it will live on Base. Base is a layer-two network created by Coinbase on top of Ethereum, layer one, that is, on the Ethereum blockchain. Under this implementation, it is not necessary to use ETH for anything, not even to move JPMD between institutions. In fact, these systems function with their own validators and closed systems, being able to even pay fees in the JPMD token itself or use internal mechanisms.

If this mode of operation consolidates, then yes, certainly, Ethereum as a blockchain could become a base layer that allows a lot of value movement around the world, many stablecoins here and stablecoins there, just as the internet allows the movement of information globally. And in the same way, the value will surely stay with JP Morgan and not in the Ethereum token. Or do you know anyone who owns internet shares?

And this is a general problem within altcoins, one that becomes more apparent the longer time passes. When the first tokens after Bitcoin arrived, its dominance over the sector fell sharply and quickly, as often happens with expectations. However, it has been recovering from those moments, and while it is unlikely that it will recover 98% control because that would imply that Bitcoin would be practically the only thing that existed, it is equally or more unlikely that a new token or an old token will appreciate against Bitcoin. Its dominance will decrease as more stablecoins are created within the blockchain. And as Scotty Besent, the US Treasury Secretary, estimates that by 2030 there will be almost 4 trillion dollars in stablecoins, obviously Bitcoin's dominance will surely be lower. But it won't be because the token of another blockchain appreciates sustainably against Bitcoin for the simple reason that Bitcoin has no competitors in the business of accumulating wealth, of serving as a store of value. No other token is dedicated to that, because no other token can do it, and therefore no other token can be more valuable in the long term. We may, however, see the famous alt seasons; that is, it may be that we are at the beginning of one of them or at least seeing the reflection of what the Alt Seasons once were, because certainly their capacity to bring money is decreasing every day.

Posted Using INLEO