Bitcoin is beginning to assert its dominance over all other cryptocurrency coins.
In 2021, thousands of new altcoin competitors attacked the original digital coin – from solana to polkadot and litecoin to dogecoin and dogecoin. This raised the possibility of rapid fragmentation in the crypto market.
Bitcoin has managed to stem its market share loss this month and is now gaining ground as investors panic and seek the relative safety and security of the largest crypto player, while they battle an aggressive Fed and talk about war in Europe.
According to CoinMarketCap data, Bitcoin’s share in the $1.68 trillion crypto-market has increased to 42% from 39% just two weeks ago. This is the first time that it has seen an increase since falling from 46% in mid October.
Market participants caution it is too early to declare a trend and point out that although bitcoin has outperformed other crypto markets, the whole market has dropped this month. Some believe 13-year old bitcoin may continue to gain from the more cautious investment environment.
Matthew Dibb (chief operating officer at Stack Funds, a crypto fund distributor based in Singapore) stated that if risk-off continues, bitcoin will sucking up liquidity in crypto markets.
Although most cryptocurrencies still use bitcoin as their price cues, some fund managers anticipate a gradual divergence or decoupling this year. This will require more discrimination.
According to Jeff Dorman, chief investor at digital asset management company Arca, ‘While some casual market observers were able print a pretty good satoshi (bitcoin investments) last year by simply watching their favourite assets rise, 2022 will likely require a more cautious, nuanced and active strategy.
“Pockets are a source of strength that will occasionally emerge. Keeping a few of these shifts in your repertoire will make a huge difference to your performance for the year.
SOLANA: A CANARY IN THE COAL MINE?
The year has started with a rocky start for cryptocurrency investors, who ran from the risk. However, bitcoin’s January 20% drop to $37,000 is the lowest among top coins.
The main challenger, ether, the cryptocurrency on the Ethereum blockchain is down 34%.
Even more cryptocurrencies that are linked to blockchains to create decentralised finance apps have lost ground. Solana, which rose 100 times in 2021, is now down 47% and polkadot, 41%.
However, the December selloff has been less volatile than bitcoin’s May 2021 rout. It saw lower volume transactions and a halving of bitcoin’s value in just nine days.
“A range between $30,000 to $40,000 for a few days or even months would be not surprising me,” said Michal Cymbalisty from Chicago, cofounder of the decentralised exchange Domination Finance. He also stated that concerns about a long “crypto winter” were exaggerated.
Analysts see solana, given its rapid rise in 2021 and recent outages, as the “canary in the coalmine”.
JPMorgan analysts often refer to solana as the ‘ethereum killer’. They cite its use of non-fungible tokens, NFTs, to explain why it has gained market share at the expense of ether. BofA analysts say it ‘could be the Visa for the digital asset ecosystem.
According to CoinGecko, Solana’s market capitalisation is more than $28 billion. This makes it the seventh-largest cryptocurrency in the world.
Stack Funds’ Dibb said that Solana is a speculative crypto asset. If it rises, there will be more demand for altcoins.
He also warned of a significant decline in investor risk appetite that could lead to the demise of some cryptocurrencies.
“If there’s another risk-off wave we could see Nasdaq drop another 5.5% and cryptos could be crushed. As yet, cryptos are not an asset store of value.