What is challenging Bitcoin’s dominance

When we talk about the cyclicality of the cryptocurrency industry, we usually focus on a certain cyclicality of price movements. People often use the stock-to-flow model used by other commodities to describe the cycle.

However, there is another periodicity that is often overlooked. There are a large number of cryptocurrency players who enter the crypto world through Bitcoin and follow the path to find the “next Bitcoin”, and finally find that Bitcoin is the best cryptocurrency.

My own encryption journey started on this path. At the beginning, I spent a lot of energy learning the encryption knowledge of Bitcoin, then turned to Bitcoin Cash BCH, and finally returned to Bitcoin.

It is easy to understand why Bitcoin is the best crypto asset. In 2017, when most crypto assets had liquidity problems, Bitcoin had plenty of liquidity. When most other assets shrank by 90% in 2018, Bitcoin’s shrinking was not so severe. But what is different today?

In this article, I will re- point encryption market introduction of market structure and the competitive environment changes, and the challenges of being Bitcoin dominance.


We like to discuss derivatives, and we cannot ignore the importance of derivatives to Bitcoin’s dominance after 2018. Different from the current mainstream view, I think the most important factor for Bitcoin’s success may not be outstanding ideas or technology, but the derivatives market’s preference for Bitcoin in a very interesting way, but this issue is often overlooked.

When BitMEX’s perpetual swaps dominated in 2018, it provided traders with a unique way of market transactions, through currency-based margin, currency-based profit and loss, and trading Bitcoin products. Swap contracts became the most liquid product on the market, and BitMEX soon led the market. At the same time, we have seen Bitcoin’s dominance doubled because funds, venture capital groups, and cryptocurrency companies actively hedge risks by trading on BitMEX with BTC as the margin.

This advantage in liquidity, trading volume and stability made BitMEX the center of derivatives trading at that time and prompted them to open up a new market: ALT/BTC.

When ETH USD Quanto went live in May 2018, we saw a sharp drop in the price of ETH, partly because many traders were able to trade ETHUSD collateralized by BTC for the first time (previously, only ETH/BTC was provided). Most traders don’t realize that this inadvertently became the beginning of Bitcoin’s dominance of the market, because all profits and losses are denominated in BTC.

It doesn’t matter what contract you are trading: an exchange denominated only in Bitcoin means that everyone is pursuing one thing: Bitcoin. The reason why Bitcoin remained absolutely dominant in 2018 is not purely because of its first mover advantage or the largest market value, but because it is the most widely traded and most liquid product and the product of choice for trading on BitMEX. This argument is cyclical in some respects, but liquidity and trading volume will bring more liquidity and trading volume, and the strongest traders and funds will always target places where the market already exists and the counterparty risk is reduced.

In short, as the entire market shifts to currency-based margin swap contracts, the entire market also shifts to Bitcoin as king. In many ways, the things of 2017/2018 will never happen again. And there is a strong argument that supports Bitcoin’s dominance has reached a historical peak, because there are now a variety of structured products, people can use almost any base currency for transactions. In other words, the large-scale adoption of stablecoins in the market inhibits the need to use Bitcoin as the only asset, and even creates the possibility of challenging Bitcoin’s domination.

Entrance to the crypto world

In addition to the impact of stablecoin margin derivatives, the fiat currency entrance that directly enters the encryption market has become increasingly smooth, allowing users to bypass Bitcoin, which weakens an important role of Bitcoin: the passage of the fiat currency world and the encrypted world.

As the scale of the cryptocurrency market expands, the accessibility of the cryptocurrency spot market is also increasing. In the United States, for example, users can trade spot goods through more than a dozen exchanges in a relatively short period of time. In addition to causing the expansion of the spot market, the trading volume of fiat currencies (mainly US dollars) has increased, thus challenging the spot trading with Bitcoin as the core.

Take the ETH/BTC and ETH/USD pair on the Binance spot market as an example. In the course of the past two years, due to the great development of the entry of legal currency, Bitcoin trading pairs have been dwarfed, and the ETH spot market has been completely divided. As more markets are established and liquidity turns to the legal currency spot market, Bitcoin’s function as the main gateway to cryptocurrency has been weakened. A quick look at the difference in trading volume between DOGEUSDT and BTCUSDT on Binance also confirms this trend, as DOGE’s trading volume has been able to surpass BTC in the past few weeks.

In addition to entry channels, the crypto market also benefits from the adoption of assets by institutions. Grayscale, Purpose ETF, CME Futures Market, and Bitwise have all extended an olive branch to giant whales entering the field-but their products are no longer just catering to Bitcoin. Since the Chicago Mercantile Exchange announced that ETH futures and Grayscale added ETH trusts, Ethereum has accounted for approximately 20% of the futures and trusts in cryptocurrencies. The history of Bitcoin as the only institutional crypto asset has become a thing of the past, and institutions have begun to explore other cryptocurrencies (currently mainly ETH) as the basic assets of ETFs.

DeFi and the future of cryptocurrency

DeFi may be the most important long-term driver of cryptocurrency valuation and the most valuable future prospects for cryptocurrency. A year ago, the concept of DeFi was far from as easy to understand as we know it today, but the proliferation of liquid mining has pushed DeFi to become the focus of the industry. In one year, we saw DeFi TVL (total value lock-in) increased by more than 100 times, from 700 million US dollars to 91 billion US dollars, and it is still increasing.

At present, there are 6 underlying blockchains worth more than 1 billion U.S. dollars hoping to swallow the moat of Ethereum. This rapid expansion not only reflects the short-term value growth of DeFi, but also reflects the long-term collective prospects of the ecosystem. Although Bitcoin supporters claim that DeFi will eventually be built on top of Bitcoin, the reality is that Bitcoin’s architecture simply cannot support many DeFi functions that already exist on Ethereum. In this view of DeFi supporters, Bitcoin is not regarded as the role of the industry leader, and at the same time it is doubtful where Bitcoin can add value to the DeFi ecosystem.

in conclusion

In the crypto world, the market changes extremely fast, and even the best assets can hardly remain dominant forever. Bitcoin is the craziest asset with the most followers, but when we delved into the causes of this phenomenon, we found that Bitcoin faces many structural problems. With the expansion of the stable currency derivatives market, the increase in the entrance of the crypto world, and the birth of DeFi , Bitcoin’s dominance as the dominant cryptocurrency has declined, and may never return to the throne of dominating cryptocurrencies.


Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/what-is-challenging-bitcoins-dominance/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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