The Bitcoin dominance index, which demonstrates bitcoin’s market share of the entire cryptocurrency market, recorded an all-time low rate at 59.5 percent on April 30, as shown below.
CoinCap, the cryptocurrency index designed and developed by ShapeShift CEO Eric Voorhees, further revealed that the exchange volume dominance index of bitcoin also fell to 42.1 percent, which meant that the greater half of traders and users within the cryptocurrency market are trading alternative cryptocurrencies or altcoins.
However, crypto trader and investor Whalepanda maintains that use of the bitcoin dominance index is flawed. For instance, more money is coming into cryptocurrency in the form of startups and businesses; BTC-USD would never have scaled heights above $1,000 in late 2013 without Mt. Gox. Also, altcoin bubbles are experienced roughly once per year as pointed out in the post, and the bitcoin dominance index falling could just be a sign of overall growth in the cryptocurrency sector.
There exists two major reasons behind the momentum of altcoins and their explosive growth: scalability issues of bitcoin and the growing market of initial coin offerings (ICOs).
Bitcoin users, traders and investors have become impatient with bitcoin’s struggle to scale. Transactions are delayed, the fee market has grown and bitcoin has become more inefficient as digital cash. As a result, some users have moved on to other altcoins such as Ethereum’s Ether or other privacy-focused cryptocurrencies such as Zcash and Monero. Also, older, more proven altcoins such as dogecoin, peercoin, and namecoin have also seen greater volume and gained in value. Until bitcoin scales with a solution such as Segregated Witness (Segwit) or Extension Blocks, its dominance index will remain low.
For instance, the average value transaction on Etheruem’s blockchain has converged with Bitcoin’s, while the number of transactions is growing and catching up.
Another major factor behind the growth of altcoins and the altcoin market is the building bubble of ICOs. Although an ICO is nearly perfect as a method to gain capital without the presence of intermediaries in many ways, as it enables startups to raise millions of dollars in a period of days, investors have started to overvalue ICOs and their tokens. As a result, tokens that have no actual market value have emerged and their value are being sustained solely due to the hype surrounding altcoins.
However, innovative cryptocurrencies such as Zcash, Monero and Ether that have established their presence as complements to bitcoin rather than as alternatives, have gained an enormous amount of value over the past few months, with the total cryptocurrency market value reaching near $40 billion. Ether in particular has established its new all-time high price at $81.17 on May 1, breaking $7 billion in market cap.
At the forefront of Altcoin trading and market growth is ShapeShift, the prominent altcoin exchange that allows users to instantaneously trade cryptocurrencies without any KYC or AML requirements.
On March 29, ShapeShift raised a $10.4 million from venture capital firms including Lakestar, Access Venture Partners, Pantera Capital, and Blockchain Capital. In its official statement, ShapeShift reaffirmed that the company’s explosive sales and exponential growth rate appealed to a wide range of investors interested in being involved in the cryptocurrency market.
In fact, ShapeShift stated that it has experienced a 48 percent monthly growth rate on average, since its launch in 2014.
“When we started ShapeShift, a future world of natively digital assets was very theoretical. Yet this world is quickly arriving; one in which millions of forms of digital value, from access keys to tokenized derivative contracts to video game items, will trade between people and machines all over the world, every second of every day. Just as information has gone natively digital, so too now goes value. Bitcoin taught a skeptical world how to do it, and the gold rush is on,” said Voorhees.