The erosion of Bitcoin’s dominance as the most valuable cryptocurrency in terms of market capitalization last year could point the way to further gains for alternative digital assets, industry experts say.
Bitcoin’s total share of the capital invested in cryptocurrencies eased to 39% at the end of 2021, down from 70% at the start of the year.
The investment flows were biased towards altcoins — or all cryptocurrencies apart from Bitcoin — a sign they are gaining ground on the original cryptocurrency as investors channel funds into tokens with utility and community appeal, rather than just a speculative asset.
While there is no imminent threat that Bitcoin will be toppled, with recent data even showing its dominance has rebounded to 43% on a market cap of US$740 billion, the general idea is that altcoins have a bright future as the crypto industry matures. Some analysts even speculate that Ethereum, which currently has an 18.1% share of the total cryptocurrency market capitalization, may eventually displace Bitcoin for the top spot, a possible future event referred to as “The Flippening.”
“There is an evolution we’re seeing in the market, a move away from speculation, and a move toward utility. This demonstrates just how much the crypto market is maturing,” said Steve Ehrlich, CEO and co-founder of crypto-asset broker Voyager Digital.
Apart from the positive growth outlook for Ethereum, analysts also highlighted Terra, Avalanche, Cosmos, Fantom, and CHZ as among the Bitcoin alternatives that may outperform thanks to their unique qualities and growth prospects.
The smart-contract blockchain Terra, and its LUNA coin, have garnered attention partly because it now ranks only behind Ethereum in terms of total value locked (TVL) in decentralized finance. Terra currently accounts for US$25.3 billion of such contracts, compared to US$108.17 billion for Ethereum.
Terra’s stablecoin ecosystem has been heralded as next-generation digital money because it is easy to spend, with low fees, instant settlement and utility for cross-border transactions.
“The growth of decentralized stablecoin UST, which propels LUNA’s growth, has been monumental, over the last six months, the UST market cap has increased 441%,” said Marcus Sotiriou, an analyst at GlobalBlock. “For every UST being minted, the equivalent amount of Luna is burnt. This reduction in supply with a constant demand results in an increase in price.”
Avalanche is a programmable smart contract platform for decentralized applications that has won praise from industry experts who see it as offering a number of advantages.
“Fast transactions with low costs and ease of bridging to and from Ethereum, has quickly made it a market leader,” Ehrlich said. “It’s clear the market is looking for cheaper alternatives to Ethereum, with an emphasis on ease of use and reliability.”
Avalanche can confirm transactions in less than two seconds and should benefit from a planned decentralized identity solution, according to GlobalBlock’s Sotiriou. It has a well-earned reputation as the “fastest smart contracts platform,” Sotiriou said.
Cosmos has been praised by some analysts for its growth potential in supporting an ecosystem of blockchains capable of interoperating and scaling with each other. Cosmos and its token ATOM rank as the 21st most valuable cryptocurrency by market capitalization at US$7.8 billion, according to Coinbase.
“The inter blockchain communication protocol allows independent blockchains to be able to communicate with each other, which I think is essential for crypto as a whole to succeed,” Sotiriou said.
Sotiriou also highlighted Fantom, a smart contract token that rose sharply last year. The token rose from 1.7 US cents to close the year at US$2.25. It was recently trading at US$1.26, down by over 63% from its all-time high in October.
“In my opinion, the Layer 1 blockchain will continue to take market share from Ethereum, due to its significantly lower gas fees and greater scalability,” Sotiriou said.
Still, the outlook for Fantom has taken a knock after the news that developers Anton Nell and Andre Cronje plan to exit from the project. The token fell by more than 21% during the session following the announcement on March 6.
Fan tokens are growing in popularity amid wider uptake by sporting franchises. Among the standouts is CZH, a token linked to the marketing platform Socios.com, which has partnered with more than 120 major sports organizations including the U.S. National Football League, National Basketball Association and European Football Association.
“This is a sports fan engagement platform that allows sports and entertainment entities to monetize their audiences,” Sotiriou said.
“The most prolific use case so far has been football fan tokens. Teams like FC Barcelona, Juventus, Paris Saint-Germain already have fan tokens, and I expect the platform to gain remarkable hype leading up to the football World Cup later on this year.”
Other analysts cautioned that uncertainty weighing on global markets may tamp down the global appetite for riskier assets.
In such an environment, Bitcoin may act as a draw for investors seeking a safe haven. Tony Sycamore, City Index’s senior market analyst for APAC, forecasts that Bitcoin will maintain its dominance at between 40% to 45% in terms of market capitalization of cryptocurrencies this year.