The erosion of Bitcoin’s dominance as the most valuable cryptocurrency by market capitalization last year could pave the way for further gains for alternative digital assets, according to industry experts.
Bitcoin’s total share of capital invested in cryptocurrencies fell to 39% at the end of 2021, from 70% at the start of the year.
Investment flows were skewed towards altcoins – or all cryptocurrencies except Bitcoin – a sign that they are gaining traction on the original cryptocurrency as investors funnel funds into tokens with utilitarian and community appeal, rather than just a speculative asset.
While there is no imminent threat of Bitcoin being toppled, with recent data even showing its dominance rebounding 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 are even speculating that Ethereum, which currently holds an 18.1% share of the total cryptocurrency market capitalization, could eventually displace Bitcoin for the top spot, a possible future event dubbed “The Flippening.”
“There is a shift we are seeing in the market, a move away from speculation and a move towards utility. This shows how the crypto market is maturing,” said Steve Ehrlich, CEO and co-founder of crypto-asset broker Voyager Digital.
Besides the positive growth outlook for Ethereum, analysts also highlighted Terra, Avalanche, Cosmos, Fantom, and CHZ among Bitcoin alternatives that could outperform due to their unique qualities and growth prospects.
The smart contract blockchain Terra and its coin LUNA have gained attention in part because it now ranks only behind Ethereum in total value locked (TVL) in decentralized finance. Terra currently accounts for $25.3 billion of these contracts, compared to $108.17 billion for Ethereum.
Terra’s stablecoin ecosystem has been touted as a next-generation digital currency because it’s easy to spend, with low fees, instant settlement, and usefulness for cross-border transactions.
“The growth of the decentralized stablecoin UST, which propels the growth of LUNA, has been monumental, in the last six months the market capitalization of UST has increased by 441%,” said Marcus Sotiriou, analyst at GlobalBlock. “For every UST struck, the equivalent amount of Luna is burned. This reduction in supply with constant demand translates into higher prices.
Avalanche is a programmable smart contract platform for decentralized applications that has been praised by industry experts who consider it to offer a number of benefits.
“Fast transactions with low costs and ease of transitioning to and from Ethereum quickly made it a market leader,” Ehrlich said. “Clearly the market is looking for cheaper alternatives to Ethereum, with a focus 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-deserved reputation as the “fastest smart contract platform,” Sotiriou said.
Cosmos has been hailed by some analysts for its growth potential in supporting a blockchain ecosystem that can interoperate and scale with each other. Cosmos and its ATOM token rank as the 21st most valuable cryptocurrency by market capitalization with 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 believe is essential for crypto as a whole to succeed,” Sotiriou said.
Sotiriou also highlighted Fantom, a smart contract token that has risen sharply over the past year. The token rose from 1.7 cents US to end the year at US$2.25. It was recently trading at US$1.26, down more than 63% from its all-time high in October.
“In my view, 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, Fantom’s prospects took a hit following news that developers Anton Nell and Andre Cronje plan to leave the project. The token fell more than 21% at the meeting following the March 6 announcement.
Fan tokens are growing in popularity amid wider adoption by sports franchises. Among the stars is CZH, a token linked to the marketing platform Socios.comwhich has partnered with more than 120 major sports organizations, including the United States National Football League, National Basketball Association and European Football Association.
“It’s 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 which the platform is gaining remarkable traction ahead of the FIFA World Cup later this year.
Other analysts have warned that the uncertainty hanging over global markets could dampen global appetite for riskier assets.
In such an environment, Bitcoin may attract investors looking for a safe haven. Tony Sycamore, City Index’s Principal Market Analyst for APAC, predicts that Bitcoin will maintain its dominance between 40% and 45% in terms of cryptocurrency market capitalization this year.