Bitcoin Dominance (BTC) has always been one of the first info offered on cryptocurrency ranking sites like Coin360 and CoinMarketCap. While this sounds like a standardized and straightforward account, there is an argument that the market share index loses its meaning over time.

The astonishing growth should be noted in the stablecoin industry. Since the market capitalization of USDT and USDC have appreciated dramatically over the past year, should they both have the same “dominance” rating?

Whatever the answer, cryptocurrency investors need to understand that just looking at the dominance of BTC to decide whether to change the allocation of altcoins in the wallet has become less efficient.

Free swimming problem
Simplicity is perhaps the main reason for the popularity of the market value calculation method. Even investors new to the game can understand that multiplying the last traded price by the number of currencies released lets you see the total market value. The same logic applies to stocks, mutual funds, ETFs, and more tradeable assets.

The problem arises when the amount regularly traded is very small compared to the outstanding equity balance. Some of the current global stock indices are based on the concept of free trade.

This adjustment is made to avoid distortion caused by an overvalued market capitalization and works by ignoring stocks that cannot move freely. It is usually stocks or coins that cannot move freely as a result of lockdown periods or shareholder agreements.

In traditional markets, the S&P 500, Nasdaq-100, CAC 40, DAX, HSI, and FTSE-100 are freely traded. Thus, the market value of each company is adjusted for the percentage of freely available shares.

The encryption is still not transparent
While information on public stock availability can be readily available due to registration by the U.S. Securities and Exchange Commission (SEC), there is no similar rule for cryptocurrencies. It is easy to confirm the number of Bitcoins that were sent to Genesis addresses. These currencies are useless, but this is not the case for all cryptocurrencies.

As Cointelegraph reported, Bitcoin holdings under the Grayscale Mutual Fund are also under lock and key. GBTC and similar funds do not currently have fixed redemption programs, which means that there is no way for an investor to acquire the underlying BTC asset.

Aside from the simplest case, one can only guess how much BTC has been lost over the years. Research shows that as many as four million Bitcoins are gone forever, including a million linked to Satoshi metals.

The problem of free circulation of cryptocurrencies is even greater. For example, Bitcoin Cash (BCH) has a third of the supply that has never been touched upon.

Strict delivery calendars and double counting are a problem
Arguably, there hasn’t been much change in regards to healthy and lost cryptocurrencies when it comes to bitcoin and forks. Therefore, this should not affect the latest data on BTC’s dominance. While this is true, the corresponding inflation for these currencies is not taken into account.

According to Missari, there will be a 20% increase in Ripple (XRP) in circulation in 2020 alone. This increase was followed by Compound (COMP) 40%, Stellar (XLM) 17.4%, ZCash (ZEC) 15.6%, Polkadot (DOT) 13.8% and Cosmos (ATOM) 10%.

It is important to note that an increase in the supply of cryptocurrencies will not necessarily increase the market value. This effect will depend on a single rate change for each cryptocurrency. However, this inflationary pressure poses a significant threat to altcoins and puts downside pressure on Bitcoin’s dominance.

For every DAI release, there is a basket of other cryptocurrencies that support it. The same can be said for the ERC-20 Wrapped BTC (WBTC) token backed by Bitcoins on a 1: 1 basis. These are some examples of double counting that can inflate the market value of cryptocurrencies.

Past performance does not guarantee future performance
When we think of the bullish gains of 2017, Bitcoin’s 1.318% rally may seem implausible, but the truth is that it did not reach the top ten after the numbers for that year, led by XRP (36.018%) and NEM (XEM) (29.842). %), Ardor (ARDR) (16,809%) and XLM (14,441%).

This first move of 1.318% may have created a myth that Bitcoin’s dominance should decline during the rise of the cryptocurrency, and the term “altcoin season” was coined to reflect the supposed rally that occurs when bitcoin’s dominance falls.

Note how BTC’s dominance decreased from 95% to 37% in early 2018. At the time, ICOs were being rolled out every month, and some had surpassed the $ 5 billion valuation.

Source: CoinTelegraph