Bitcoin’s market dominance is at the highest levels in years
Bitcoin continues to march toward all-time-highs that were only reached earlier in 2024, although the volatility that the token has experienced in the run-up to the U.S. Presidential election has been elevated when compared to prior periods in the year. Regardless of the volatile rise, the fact remains that the price of bitcoin and bitcoin interest continues to move in positive directions in spite of short-term setbacks. Alongside the growing interest and investment into the crypto sector by both major political parties the crypto sector has experienced an upswing in price, trading volume, and investor sentiment. As has occurred during previous bull markets, a rising tide in the crypto sector at large has led to a re-establishment of bitcoin dominance and leadership.
Specifically, the share of total market capitalization captured by bitcoin, used to determine the dominance of bitcoin has risen to approximately 60% as of October 2024 which is the highest level since April of 2022. Following the declines in crypto prices overall in 2022 – and bottoming out with the collapse of FTX in November 2022, the market share of bitcoin has continued to steadily increase since those events. In addition to the market capitalization aspect of market leadership it is worth pointing out that the institutional inflows and interest coming into crypto have continued to be centered around bitcoin. For example, while both bitcoin and ether have spot ETFs products at this point, the bitcoin ETFs have attracted $18.9 billion while ether ETFs have attracted a substantially lower amount.
Given all of that investors might be surprised to learn about several other major developments in the crypto sector. Let’s take a look at a few of the headlines that market watchers might have overlooked.
Stablecoins Continue Making Inroads
With the rising price of bitcoin, the steady inflows into spot bitcoin ETFs, and the fact that legislation has been put forward advocating for a strategic bitcoin reserve it would be relatively straightforward for investors and policymakers to relegate stablecoins to the back burner. Doing so, however, would be ignoring a slice of the cryptoasset sector that continues to not only grow in market capitalization, but also would ignore a potential on-ramp for millions of new crypto users.
USDT and USDC continue to dominate the stablecoin sector, with the former retaining its position as the largest and most commonly used stablecoin and the latter continuing to rank among the most trusted cryptoasset by the TradFi community. Despite doubts connected to business models, the ability to the issuing institutions to weather higher interest rates, and the looming potential of a CBDC stablecoins continue to represent the crypto of choice for users seeking to utilize crypto as a medium of exchange, as on on-ramp to crypto for non-expert investors, and as the crypto of choice for TradFi institutions looking for exposure in the crypto space.
These facts exclude the reality that PayPal, a payment processor with household name recognition in the U.S. and abroad, has launched a stablecoin and is allowing individuals and merchants to buy, sell, and hold cryptoassets, including PYUSD.
ETF Taxes Will Cause Headaches
Spot crypto ETFs were a goal that crypto advocates, investors, and entrepreneurs and the approval of both bitcoin and ether ETFs in the same calendar year was – justifiably so – seen as a major victory for the crypto sector. That said, bitcoin spot ETFs introduce several tax considerations unique to cryptocurrency and its classification by tax authorities. With a Bitcoin spot ETF, investors may face capital gains taxes when they sell shares, similar to other ETFs. However, since the ETF holds actual Bitcoin, additional complexity arises regarding cost basis tracking for the fund’s transactions, specifically as the coming changes to the IRS code make crypto tax reporting and compliance both more complicated and costly.
Another challenge is the taxation of in-kind redemptions, where Bitcoin might be delivered directly to investors, triggering taxable events. Moreover, the frequent fluctuations in Bitcoin prices can lead to short-term capital gains, which are taxed at higher rates than long-term gains. In addition, investors should take into account the implications of international tax laws if the ETF is traded abroad, as crypto regulations and tax treatments vary by country.
Centralization of Bitcoin Might Hurt In the Long-Term
One of the most under-discussed trends of the recent crypto bull market has been how the centralization of crypto, and bitcoin specifically, has continued unabated and how it has accelerated in many cases. Even as the announcements and launches of bitcoin related or even bitcoin adjacent products and services propel the price per token to higher levels, the reality is the supply of bitcoin, bitcoin sentiment, and the crypto market overall continue to become centralized.
Punctuating this reality are the actions taken by nation states such as El Salvador and Bhutan, which are both accumulating strategic reserves of bitcoin, the moves by global financial services leaders such as Blackrock and Fidelity into the bitcoin space, and the appetite that bitcoin tradeable products has fulfilled for investors. Centralization was always going to be a component of mass market adoption, but proponents of nation-state strategies for bitcoin should be wary of undermining one of the core tenets and appeals of the asset.
Bitcoin has reestablished itself as the leading cryptoasset, but these dominance levels can overshadow important trends for crypto investors.
