Rising cryptocurrency prices along with Bitcoin (BTC) helped push the total market capitalization of the digital asset industry to around $2 trillion, doubling in just a few months.
These “alt cryptocurrencies,” also known as altcoins, include ether (ETH) along with torrent (BTT), xrp (XRP), tron (TRX), and Stellar (XLM). They’ve all posted double-digit growth in the past 24 hours, according to data from Messari.
Bitcoin prices have doubled this year, with a market capitalization of $1.1 trillion, but the rally has paused in recent weeks, allowing altcoins to seize market leadership. Bitcoin’s market dominance, or share of the industry’s total capitalization, has fallen to about 57%, from about 73% at the start of the year, according to TradingView.
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Ether, the original cryptocurrency of the Ethereum blockchain and the second largest total coin, hit an all-time high near $2,100 last week. The digital asset has benefited from speculation that the Ethereum blockchain could see increased use as a preferred network for decentralized finance, or DeFi, which consists of automated blockchain-based software protocols that may one day replace banks and Wall Street trading firms.
Galen Moore, director of data and indexes at CoinDesk Research, wrote in an analysis that the outstanding performance during the recent “altcoin season” came from digital tokens belonging to so-called smart contract platforms that could rival or complement Ethereum.
These alternative block chains have also benefited from the increased use of stablecoins, which are digital tokens whose value is tied to real-world currencies, primarily in the US dollar.
“I feel the real value and implementation of stablecoins and decentralized finance on Tron and BitTorrent has been identified,” Justin Sun, founder of the Tron blockchain and CEO of BitTorrent, told CoinDesk via WeChat message.
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Daily transaction numbers on Tron have consistently outnumbered transactions on Ethereum, according to data from CoinDesk and Coin Metrics. The number of stablecoin transactions on the Tron blockchain has also outnumbered that of Ethereum, as reported by CoinDesk.
However, success for Ethereum has come at a cost: the popularity of the network has led to congestion, resulting in high transaction rates known as “gas fees.”
“The competition between public blockchains is a good thing,” Tronz Sun said. “It is true that it is almost impossible to launch new projects on Ethereum because no one wants to use projects that come with a mining cost of hundreds of dollars at a slow transaction speed.”
One example of the industry’s rapid growth, according to Denis Vinokourov, Head of Research at Synergia Capital, is Binance Smart Chain (BSC), a smart contract blockchain sponsored by crypto-exchange giant Binance.
“The narrative is that if you offer innovative products and competitive returns, one can rival the old-school institution” of Ethereum, Vinokourov told CoinDesk. “The key is cheap and fast transactions.”
The total volume of transactions on the Binance Smart Chain in February alone amounted to more than $700 billion, according to a March 11 DappRadar report. Unique active wallets on the blockchain increased to 108,000 in February from 30,000 in the previous month. Ethereum in February had 67,000 unique active wallets.
“BSC growth is generally good for the altcoin,” Vinokourov said. This means that you can compete against the ether.
A Binance spokesperson rejected CoinDesk’s request for comment on the recent rally of altcoins, including Binance’s BNB token.
crypto early adopters vs crypto novices
In contrast to the impressive growth of bitcoin since early 2020, which has been driven mostly by institutional investors, the altcoin’s rise may have been driven by early adopters of cryptocurrencies and newly arrived retail investors in the space.
“As institutional players enter the bitcoin market more and more, they have improved stability, which leads to more stability,” said Chad Stinglas, Head of Trading at CrossTower. “While this new dynamic is a welcome development for many investors, it removes some of the ingenuity and ‘wild west’ mentality that many early-stage cryptocurrency traders crave.”
Similar to retail investors’ interest in so-called “meme stocks” like GameStop in the traditional stock market, many cryptocurrency traders like cryptocurrencies with higher volatility and risk than bitcoin — for the “excitement” and increased chances of “seeing a multi-bag,” Stinglas said.
Arthur Cheung, founder and portfolio manager at DeFi-focused crypto fund DeFiance Capital, added that renewed interest in altcoins has also come from “inexperienced retail” traders.
Cheung said that traders who “don’t do a lot of research are coming back to the market,” referring to the increasing volume of cryptocurrency trading in South Korea, a country dominated by retail crypto investors.
What does a new alternate season for bitcoin mean?
Despite Bitcoin’s diminishing dominance of the market, analysts said the increased interest in altcoins will eventually benefit the largest cryptocurrency.
“These early adopters of altcoins will reduce volatility in bitcoin and ultimately help identify winners from losers in the altcoin space, a sort of prerequisite for any altcoin to emerge as a viable long-term asset,” said Stinglas.
Ki Young Joo, CEO of blockchain data provider CryptoQuant, said that the increased capital inflows could also return to bitcoin over time.
Joe said that bitcoin “will absorb the cap on the altcoin market sooner or later.”
Recent announcements of moves in cryptocurrencies by well-known financial players such as Visa, PayPal, Goldman Sachs and Morgan Stanley have boosted traders’ confidence that the industry is seeing greater major adoption.
Bitcoin’s rally over the past year has been driven by speculation that the oldest and largest cryptocurrency may be useful to investors as a hedge against inflation in the wake of trillions of dollars of coronavirus-related stimulus injected into financial markets by governments and central banks.
In addition to the growing speculation around DeFi, there has been a recent flurry of interest in non-fungible tokens, or NFTs, which represent stakes in unique assets such as art, collectibles, and even sneakers.