Regarding the Cryptocurrency Realm: The Worldview You Need to Construct (Part 1)

The Landscape of the Cryptocurrency Industry: The Unignorable Presence of BTC

By examining the distribution across various currencies, it becomes evident that BTC holds the highest market dominance, followed by ETH. Prior to March 2017, BTC's market dominance was able to maintain above 80%, after which ETH's market dominance gradually expanded. As of the time of writing, BTC's market dominance stands at 48.98%, while ETH's market dominance is at 18.98%.

Currently, BTC's significantly larger market share compared to other currencies renders them indispensable and unignorable.

Comparing Major Cryptoassets By Percentage of Total Market Capitalization with the Total

Cryptocurrency

Market Cap, a pattern emerges. During prolonged market uptrends, BTC's market dominance consistently decreases. Conversely, during extended market downtrends, BTC's market dominance experiences a continuous rise.

Considering this pattern alongside the factor of “price,” we can view tokens other than BTC as a collective entity. When BTC's market dominance declines, the following scenarios can occur in terms of price:

• BTC's price rises, and the prices of “other tokens” increase by a greater percentage.

• BTC's price decreases, yet the prices of “other tokens” increase.

• BTC's price decreases, and the prices of “other tokens” decrease by a larger margin.

Conversely, when BTC's market dominance increases, the opposite scenarios play out.



It's evident that the price of BTC and the total cryptocurrency market cap exhibit a “rise and fall together” pattern. Therefore, when BTC's market dominance increases, it's due to the fact that BTC's price decline is comparatively smaller. Conversely, when BTC's market dominance decreases, it's because BTC's price increase is overshadowed by a larger increase in the prices of “other tokens.”

BTC's Highest Market Dominance is Attributed to Several Factors:

• First Mover Advantage: Bitcoin was the first successfully implemented cryptocurrency, created by Satoshi Nakamoto in 2009. Being the pioneering cryptocurrency granted it a first mover advantage, establishing recognition and community support.

• Acceptance: Bitcoin has gained wide recognition and acceptance on a global scale, with many merchants and service providers starting to accept it as a form of payment, enhancing its practical usability.

• Security and Decentralization: Bitcoin's blockchain technology and consensus mechanism (Proof of Work) provide high security and decentralization. This means that no single entity can control the Bitcoin network, reducing manipulation risks.

• Scarcity: Bitcoin's total supply is capped at around 21 million coins, creating scarcity akin to precious metals like gold. This scarcity contributes to the perceived value of Bitcoin.

• Liquidity and Trading Volume: Bitcoin boasts high liquidity, allowing it to be traded freely on numerous exchanges and markets. High trading volumes make buying and selling Bitcoin relatively easy, establishing it as a primary trading pair for other cryptocurrencies.

• Media Attention: Being the first cryptocurrency, Bitcoin has garnered significant media attention and coverage, contributing to increased recognition and market influence.

• Network Effect: Over time, the number of Bitcoin users and holders has grown, resulting in a network effect. More people using and holding Bitcoin further solidifies its position in the market.

BTC's overall market share is consistently decreasing, with the peak of its share declining in each cycle. Interestingly, whenever BTC's market share has consistently maintained a high level, it has coincided with the bottom of the overall cryptocurrency market price.

The Cornerstone of the Cryptocurrency Market: Stablecoins



Before 2017, many centralized exchanges used BTC or ETH as anchor assets for trading pairs or issued tokens pegged to fiat currencies, inviting OTC merchants to join. However, both methods encountered several issues:

• Traders couldn't simultaneously engage in trading and investing while avoiding price fluctuations.

• Exchanges could engage in malicious activities, potentially issuing stablecoins arbitrarily.

• The entire blockchain industry lacked unified standards and norms.

USDT, issued by Tether Limited, is a stablecoin designed to maintain a 1:1 peg with traditional currency, usually the US dollar. Each USDT token's issuance is supposed to correspond to an equivalent traditional currency reserve. Initially based on the Bitcoin blockchain, USDT later expanded to other blockchains like Ethereum (ERC-20 standard), TRON (TRC-20 standard), and more. USDT is widely used for trading and investment on

cryptocurrency exchanges

, offering traders a stable value option to navigate market volatility.

Subsequently, stablecoins like USDC and BUSD, also backed 1:1 by USD reserves, were introduced.

With the widespread adoption of USD-pegged stablecoins, the cryptocurrency industry gained a underlying cash support. This led to standardized trading practices and higher transparency (issuance quantities can be traced on-chain). Companies issuing USD reserve-backed stablecoins also provide regular financial disclosures.

For investors, observing the issuance of USD reserve-backed stablecoins can provide insights into the inflow and outflow of funds within the industry. Additionally, comparing the total cryptocurrency market capitalization with the amount of USD reserve-backed stablecoins can help gauge the size of economic bubbles.