The essence of the cryptocurrency market and the technological fundamentals of the new global economy

Everyone knows about Bitcoin, but in addition to Bitcoin, there are many terms such as stablecoins, mainstream coins, platform coins, altcoins, etc., which can inevitably make people confused. Everyone was a little dazzled. Let me explain in detail what these crypto assets are and what their characteristics are.

What is the concept of stable currency, and the classification of stable currency?

Stablecoin, in essence, is a cryptocurrency with "anchor" properties, usually anchored to legal currency such as the US dollar or other assets with stable value, so there will be no drastic price fluctuations, stablecoin is more like an exchange Medium, the earliest stable currency is USDT (USDT), which was launched by Tether in 2014, and its value is 1:1 anchored to the US dollar.

Due to the high volatility of encrypted assets, investors need a relatively stable bridge currency to maintain the value of assets on the chain when trading encrypted assets. Taking the BTC/USDT trading pair as an example, if investors expect Bitcoin to fall, they will use the BTC/USDT trading pair to sell BTC and obtain USDT to maintain the value of their assets.

Stablecoins can generally be divided into two types: collateralized stablecoins and algorithmic stablecoins.

Mortgage stable currency means that certain assets are mortgaged to guarantee the stable currency and maintain the stability of its currency price. According to the different types of mortgaged assets, it can be divided into:

①The stable currency mortgaged by legal currency, that is, the legal currency is used as a mortgage, as a guarantee, and then 1:1 tokens are minted, such as USDT, TUSD, USDC, etc.

② Stablecoins mortgaged by encrypted assets, that is, encrypted assets are used as collateral for guarantee, such as DAI.

Algorithmic stablecoins do not need to be mortgaged, nor do they need any other valuable things to guarantee them. It is a monetary policy that is automatically executed through some algorithm, and relies on the deflation/expansion of its own token supply to maintain a stable price , such as UST, BAC, AMPL, etc.

What is a mainstream currency and what are the mainstream currencies?

The top few encrypted assets in the encrypted market capitalization rankings are usually called mainstream currencies. They have a large community, a large number of users, and a high degree of market activity. The mainstream currency generally has a relatively strong consensus in the encryption market, or has a greater practical application value, and its circulation is better than that of the general encrypted assets. It is an encrypted asset generally recognized by the public.

At present, the top mainstream currencies in the encryption market include BTC, ETH, ADA, XRP, BCH, LTC, etc. Bitcoin (BTC) is the mainstream of the mainstream, firmly occupying the first position in total market capitalization since its birth in 2009. In most cases, Bitcoin is the absolute weathervane in the encryption market. Generally speaking, when Bitcoin rises, other mainstream currencies will follow suit; when Bitcoin falls, other mainstream currencies will follow suit.

Ethereum (ETH) is the original token of the Ethereum network, and some people call it Ethereum. It is an encrypted asset developed by founder Vitalik Buterin inspired by Bitcoin. It is intended to be a further step on the basis of Bitcoin. To develop, increase transaction speed and carry more applications through smart contracts, Ethereum is currently the second only cryptocurrency in the encryption market after Bitcoin.

Cardano (ADA) is also known as the Japanese Ethereum because most of its early start-up funds came from Japan, and its founder Charles Hoskinson was once the co-founder of Ethereum.

Ripple currency (XRP) is the basic currency of the Ripple network. The operating company is Ripple Labs (formerly known as OpenCoin), with a total amount of 100 billion. It is committed to becoming a standard transaction protocol common to major banks around the world, enabling currency transfer become as cheap, convenient and quick as sending an email, but Ripple is currently in deep litigation with the US Securities and Exchange Commission (SEC), because the SEC believes that XRP issued by Ripple is a security.

Litecoin (LTC) is also an encrypted asset created by developers inspired by Bitcoin. Like Bitcoin, it adopts the proof-of-work mechanism and is an old mainstream currency that existed in 2011.

What is an altcoin, and what altcoins are popular at the moment?

The original meaning of the word Shanzhai refers to imitation, copying, and plagiarism. As the name suggests, Shanzhai currency is an encrypted asset developed by imitating a certain token. In fact, the concept between mainstream currency and altcoin is not so clear. For example, in the early days of the encryption market, Litecoin was born by imitating Bitcoin, so Litecoin was once called the earliest Bitcoin altcoin, but now this rhetoric is basically useless.

Another example is Dogecoin (DOGE), which was first launched in 2013. Although it is an encrypted asset with a long history in the encryption industry, before 2021, the price of Dogecoin is relatively low, and its market value ranks relatively low. The ranks of altcoins, but recently, under the impetus of Musk and other celebrities and institutions, Dogecoin has skyrocketed, and its total market value has jumped to the top ten in the encryption market. Considering that Dogecoin is driven by short-term market sentiment, and its follow-up trend needs further verification, it is difficult to say whether it is an altcoin or a mainstream currency.

In fact, altcoins are not fake or counterfeit encrypted assets. They are also encrypted assets generated by using blockchain technology, but relatively speaking, altcoins are not as recognized and liquid as mainstream currencies.

With the continuous development of the market and the hype of capital flow, a batch of "star altcoins" will appear at each stage. For example, the altcoins popular in the past month are animal tokens.

Bitcoin, as the first commercial cryptocurrency, started the global adoption of blockchain technology, peer-to-peer transactions,and pretty much everything in between. However, history is not the most interesting aspect of Bitcoin. We are interested in BTC dominance - a concept not just in jargon but as a tradable metric - emerges from Bitcoin dominance chart.

Bitcoin is the first ever cryptocurrency. Launched in 2009,it has captured 100% of the cryptocurrency market share. Over time, other players start appearing. Litecoin, Ethereum and a long list of altcoins! As a result, Bitcoin's dominance began to decline while continuing to serve as an important indicator for tracking total market capitalization, changing user sentiment,and the general state of the crypto market.

What does Bitcoin dominance mean?

The short answer is (BTC market cap / total crypto market cap) x 100. Long story short, BTC dominance is a percentage value that measures BTC’s dominance relative to the overall market.

The growth of the small coin space(with new coins/tokens appearing every day)makes Bitcoin dominance a very useful tool. Some cryptocurrency traders and investors prefer to use this resource to fine-tune their portfolios and trading/investing strategies.

Why only Bitcoin and not Ethereum?

Since BTC dominance is the ratio of Bitcoin’s market capitalization to the overall market capitalization, this calculation even applies to other cryptocurrencies. In theory, anyone can figure out the dominance of Ethereum or Cardano by applying simple mathematics.However, we usually only talk about Bitcoin because it started as the first commercial cryptocurrency and remains by far the most dominant cryptocurrency in terms of market capitalization–accounting for 39% of the entire cryptocurrency space.

It's the first one, and it's big. Pay attention!

Furthermore, Bitcoin dominance is not a stand-alone concept. If you’ve followed the Bitcoin Fear and Greed Index, you’ll know that "dominance"is one of the sub-index indicators with a weight of 15%.

If BTC moves upwards on the price chart,its market dominance increases. Yes, the relationship is that direct. When smaller coins were less popular, BTC dominance was close to 65%. However, things are starting to change as blockchain-powered gaming, financial services and art grow in popularity. Thus, every new development in the crypto space that brings new coins plays a role in pushing Bitcoin’s dominance down.

The only way for BTC to maintain its dominance is if the cryptocurrency’s popularity continues to grow. Value (price) may be subjective, and there are more and more new currencies. As time moves, the dominant influence of BTC will fall back

As of May 2024, there are over 2,000 crypto assets in circulation. People tend to try other options based on social sentiment, shilling levels, fundamentals and hype. Keep in mind that Bitcoin's dominance could be affected if money starts flowing heavily into other cryptocurrencies.

Meanwhile, this rise in the crypto market has driven many whale accounts and novice cryptocurrency investment funds into the market. As mentioned last time, most of the inflows are now going to the smaller cryptocurrency markets, so many of the smaller coins are up over 200% and more.

According to statistics: newcomers to the cryptocurrency market prefer to invest in small cryptocurrency trading. The reason for this is the high price of BTC, which fluctuates too much on the day to be profitable. In addition, there are many institutional accounts with large amounts of money in BTC trading that specialize in harvesting BTC newbies.

In addition, the popularity of stablecoins

Satoshi Nakamoto envisioned Bitcoin for peer-to-peer transactions. More recently, stablecoins appear to have taken on this responsibility, driving crypto investors to exchanges. Therefore, the popularity of stablecoins could significantly dilute BTC’s dominance. Unlike newer smaller coins, stablecoins such as USDT, USDC, and BUSD have a more prominent market share, making them strong rivals for Bitcoin’s dominance.

These are the factors that can affect BTC's dominance, but you don't have to worry that BTC's dominance is still unshakeable.

However, in an accelerating bull market cycle, the opposite may be true. Despite the growing market capitalization, Bitcoin's dominance may decline as people prefer to diversify their investments into smaller tokens.

The advantages of mainstream currencies are that there are many players, many exchanges on the market, high attention, large trading volume, and it is not easy to judge the market.

Small currencies are the opposite. The number of exchanges that can be traded is not as wide as the mainstream currency of BTC. In order to increase competitiveness, many large exchanges will only have small currencies that can be traded on their own platforms.

Alternative cryptocurrencies do not have the market share advantage of Bitcoin. While the small coin accounts for 40% of the crypto market share, it is fragmented among thousands of currencies.

Some small coins are only available on certain cryptocurrency markets. So they have fewer investors, which makes their liquidity lower than that of institutions in BTC, and there are fewer whales, so price fluctuations are easier to judge than BTC prices

Smaller coins often improve Bitcoin's perceived or actual shortcomings, making it technically superior. Smaller coins tend to appreciate in value, increasing your potential profit. But you have to choose the right small currency.