The value of the entire cryptocurrency market exceeded $2 trillion for the first time on Monday, driven by a rally in Ethereum, the second-largest digital currency.
In just over two months, the market capitalization of the cryptocurrency
market has doubled, according to CoinGecko data, as private and institutional investors have poured into the Crypto space.
Bitcoin, the largest digital currency, accounts for more than 50% of the total market capitalization of cryptocurrencies. Bitcoin has risen by more than 100% this year alone, and that has helped propel the cryptocurrency market to new heights.
But the latest boost in the cryptocurrency market seems to have been driven by ETH, the digital currency that powers the Ethereum
blockchain. The coin managed to reach a new all-time high of $2150.
There is growing excitement about the use of Ethereum in so-called decentralized financial, or DeFi
, applications. These are blockchain-based financial services, such as loans, that can theoretically bypass banks and brokers. Users of these apps can make transactions using cryptocurrency.
Ethereum also has the underlying technology behind the recent craze in non-fungible tokens, or NFTs
- a new type of digital asset.
) dominance declined heavily in 2021 in part due to the rally of Ethereum, as well as other cryptocurrencies. At the beginning of 2021, Bitcoin covered about 73% of the total market capitalization where today it is only 55%.
If we look back at the history of Bitcoin dominance we see that the 60% has always been an important level. Breaking through the 60% - downwards - has previously usually been a sign that "altcoin season" has begun. Altcoin
season is a period when other coins perform much better than Bitcoin and Bitcoin dominance may well decline to as low as 35%. Also, in such a period we often see unnatural explosive increases of up to 100% in one day.
An example of such a rise is that of Stacks (STX
) yesterday. At its peak, it managed to achieve a rise of some 150% in a single day. Bittorrent (BTT
), Tron (TRX
), Ripple (XRP
), and Stellar (XLM
) also managed to reach positive double digits. All of these increases are taking place while Bitcoin is mainly moving sideways so its dominance is thus waning.
What does the new alt season mean for Bitcoin?
Although Bitcoin's market dominance has waned, analysts say the growing interest in altcoins will ultimately benefit the largest cryptocurrency.
"These early adopters switching to altcoins will reduce volatility in Bitcoin and also ultimately help separate the winners from the losers in the alt market, which is a necessary condition for altcoins to emerge as a viable longer-term asset," Steinglass said.
Ki-Young Ju, CEO of blockchain
data provider CryptoQuant, said the increased capital flows may also flow back to Bitcoin over time.
Bitcoin "will sooner or later absorb the altcoin market cap," Ju said.
Recent announcements of moving into cryptocurrencies by established financial players such as Visa
, PayPal, Goldman Sachs and Morgan Stanley have bolstered traders' confidence that the sector is seeing greater mainstream adoption.
Bitcoin's rally over the past year has been fueled by speculation that the oldest and largest cryptocurrency could be useful to investors as a hedge against inflation in the wake of the trillions of dollars of coronavirus-related stimulus injected into financial markets by governments and central banks.
In addition to the growing speculation on DeFi, there has recently been a surge of interest in non-fungible tokens, or NFTs, which represent interests in unique assets such as art, collectables, even sneakers.