With the price of Bitcoin seeming resilient above $11,000, you could be forgiven for thinking that the notoriously volatile king of cryptocurrency has never been in a stronger position. However, as Bitcoin closes out an incredible 2017 with a final surge in value, it’s continued bearish outlook against the US dollar masks strong indications that Bitcoin is quickly losing its lustre.
The growth of Bitcoin has sparked mainstream interest in a cryptocurrency space that was considered a niche financial novelty a year ago. The interest has spilled over into all other cryptocurrencies and you’d have difficult finding a coin that didn’t provide a wild return on investment over the past twelve months. But heading into 2018, Bitcoin is rapidly losing its market dominance.
Bitcoin spent the first few months of 2017 consistently accounting for more than 85% of cryptocurrency’s total market cap. This began dropping in March and hit a low of 37.78% on June 20.
Bitcoin regained some ground when its value began surging in October. There were a few days in early November when Bitcoin was back above 60% of cryptocurrency’s market cap, but it looks to be heading into 2018 at closer to 50%.
Why Declining Market Share is Bad for Brand Bitcoin
This is bad for Bitcoin because its current success largely hinges on its brand name value. The headline-generating speculative frenzy surrounding Bitcoin has made it a household name. Most people probably still couldn’t tell you what the blockchain is, but they could tell you that they wished they’d poured their life savings into Bitcoin before the price shot up.
Bitcoin has achieved this brand recognition largely by virtue of being the first of its kind. But there is almost nothing that Bitcoin can do that other cryptocurrencies aren’t already doing much better.
If you want to make quick payments with minimal transaction fees, you’re better off using Ripple or Litecoin. If you want anonymity, go for Monero or Zcash. If you’d like to make a speculative bet on the revolutionary potential of blockchain-enabled technology, then Ethereum, Neo and IOTA are all much more attractive propositions.
But what Bitcoin has more of than any of these other cryptocurrencies is brand recognition. The value of brand recognition should not be underestimated, especially when it comes to finance. Many people would be reluctant to place their life savings in an online-only bank, even if it promised to be better in every way than a bank on the high street. Even if the online bank’s website displayed guarantees from government-approved financial authorities, many people would be reluctant to trust them with their hard-earned cash.
Amid incredible price volatility and repeated warnings from big-time financial players that it’s nothing but a bubble and/or scam, it might seem strange to talk about Bitcoin being a trusted and reputable asset. But in the wild world of cryptocurrency, that’s exactly what Bitcoin is. However, one big crash could destroy the trust that’s been placed in Brand Bitcoin.
Bitcoin has already weathered big crashes before, most notably in 2013, when its value dropped from around $1000 to $500 and then kept on falling, eventually bottoming out at around $200 in 2015. But during this entire time span, Bitcoin’s market share never spent more than a few days below 80%.
If you look at a chart of Bitcoin’s market share since it was first launched, you’ll see years spent hovering between 80% and 90% market dominance, then a sudden extreme drop-off in the first few months of 2017.
The Outlook for Brand Bitcoin
While Bitcoin’s share of the cryptocurrency market has declined over the past year, its dollar value and market capitalization have skyrocketed. Bitcoin might be competing in a much more crowded marketplace than it was a year ago, but it’s also gone from being a big fish in a small pond to the biggest beast in a rapidly-expanding ocean.
But cracks are already showing in the resilience of Brand Bitcoin. Breakaways like Bitcoin Gold and Bitcoin Cash have proved hugely controversial because of their potential to dilute the brand. Many long-term Bitcoin-holders have petitioned cryptocurrency exchanges to list Bitcoin Cash as Bcash to reduce the potential for brand confusion.
At the same time, cryptocurrency’s unstoppable march into the financial mainstream has seen projects like Ethereum and IOTA accumulate a lot more media coverage.
Bitcoin is still the intermediary of choice when moving funds between fiat and cryptocurrencies and its success is therefore inextricably linked with that of all other cryptocurrencies. But this situation may not last forever. Major exchanges such as Coinbase already allow Ethereum to be purchased directly with fiat currency. As the space develops, more coins could gain the same level of legitimacy and fungibility.
Bitcoin is still the king of cryptocurrency because of the self-sustaining legitimacy that being at the top gives it. But if its dollar value and market capitalization ever slip from the top spot, it might be a death sentence.