Summary
The Bitcoin Leading Index refers to the share of the oldest cryptocurrency, BTC, in the total cryptocurrency market cap. Since its launch in 2009, Bitcoin has been the only digital asset in existence for quite some time, naturally accounting for the entire cryptocurrency market cap alone. However, times have changed. In 2013, the first wave of altcoins appeared in the market, injecting new value into the cryptocurrency market cap. In 2015, Ethereum was launched, and Bitcoin's strong rival Ether came on the scene. Then in 2017, the rapid development of initial coin offerings (ICOs) led to further dilution of the BTC Leading Index and hit a record low, but it rebounded to more than 50% only a few months later. Today, the BTC Leading Index faces fierce competition from DeFi, NFT and Metaverse tokens, as well as more than 20,000 non-Bitcoin cryptocurrencies.
Introduction
Bitcoin, the "ancestor" of the world's cryptocurrency, was launched to the public in 2009 by a developer or group of developers anonymously named Satoshi Nakamoto. Since then, despite constant competition, Bitcoin's share and value remain the highest in the world. Bitcoin's underlying technology has inspired the development of thousands of emerging cryptocurrencies, collectively referred to as tokens or altcoins.
Compared to other digital assets, Bitcoin still has a high weight and is a bellwether for the entire cryptocurrency market. Traders and analysts use the Bitcoin Leading Index, also known as the "BTC Leading Index", to measure Bitcoin's market capitalization share within the larger cryptocurrency market.
What is the BTC Leading Index?
The BTC Leading Index refers to the share of Bitcoin in the overall market capitalization of the cryptocurrency market, which is calculated by dividing the BTC market capitalization by the total market capitalization of the cryptocurrency market.
Why is the BTC Leading Index important? Traders have long used the BTC Leading Index to benchmark Bitcoin and determine whether altcoins are in an uptrend or a downtrend. One of the mainstream views is that if altcoins are in an uptrend, the cryptocurrency market will enter a bull market. For example, in 2017, the BTC Leading Index fell sharply, coinciding with the surge in altcoin prices (not the decline in BTC prices), and the timing coincided with the entire market entering a bull market.
The Development of Cryptocurrency from One to Thousand
In 2011, the first altcoin, Litecoin, was launched. In 2013, Forbes magazine called that year the "Year of Bitcoin," and the number of emerging altcoins entering the market began to increase rapidly. By May 2013, at least ten tokens had appeared in the cryptocurrency market, including Litecoin (LTC) and Ripple (XRP).
Meanwhile, as more and more investors get into the digital asset space, Bitcoin prices are gradually soaring. However, even with the strong competition from newcomers, BTC’s leading index still accounts for about 95% during this period.
Ethereum is born
In 2015, Vitalik Buterin led a team of developers to launch the Ethereum (ETH) network. Ethereum competed with Bitcoin and aimed to create a blockchain that not only met financial services such as fund transfers, but also had a wide range of use cases. Bitcoin was not affected by the competition from Ethereum's native token, Ether (ETH), and continued to occupy 90-95% of the cryptocurrency market. It was not until 2017 that the situation changed with the rapid development of initial coin offerings (ICOs).
The ICO boom
Initial coin offerings (ICOs) are a popular way to crowdfund early cryptocurrency projects, and they became a mainstream trend between 2017 and 2018. During this period, about 2,000 independent ICOs emerged, raising more than $10 billion in total. Funds began to flow from Bitcoin to many of the emerging altcoins. Some investors were optimistic about some interesting but untested use cases, while another wave of investors was more interested in profiting from wildly volatile prices.
Competition among altcoins became unprecedentedly fierce, causing the Bitcoin Leading Index to fall sharply for the first time, falling to a historic low of around 37% in January 2018.
The Crypto Winter of 2018
The ICO boom, while gaining widespread attention in the cryptocurrency space, was short-lived. Investors gradually realized that many ICO projects either lacked core fundamentals or had questionable business practices. Some projects even became targets of regulatory scrutiny in the United States and other authorities. This escalation of negative sentiment eventually enveloped the entire industry, causing prices across the cryptocurrency market to fall and stagnate for a long time.
Bitcoin market recovers
As the value of many altcoins fell and investors became generally disillusioned with ICOs, the BTC Leading Index gradually recovered to over 50% in the final months of 2018.
In 2019, Bitcoin prices recovered slightly, trading at around $7,000 at the end of the year, while the BTC Leading Index peaked at around 70% in September. However, the digital asset remained relatively static until the COVID-19 pandemic hit the world in 2020.
Markets under the shadow of the epidemic
Since 2020, after a brief overall decline caused by the impact of the epidemic, the cryptocurrency market has ushered in an unprecedented bull market. At the same time, the BTC leading index reached 72% in January 2021, a new high since 2017, and then fell to 39% in mid-2021.
Under the lingering shadow of the epidemic, people trapped at home with nothing to do began to turn to day trading and investment to pass the time. At the same time, in order to alleviate the economic downturn caused by the epidemic, governments have issued cash subsidies to stimulate the troubled economy. For the first time, retail traders invested a larger proportion of their funds in the stock, foreign exchange or cryptocurrency markets.
In the second half of 2020, as the media collectively focused on the cryptocurrency field, high-risk altcoins gradually gained widespread attention from retail investors, and novices seeking quick profits flocked to them. For example, in 2021, the price of Shiba Inu Coin (SHIB) soared more than 4,000 times.
In addition, the rapid development of decentralized finance (DeFI) and NFTs, which mainly exist in competing blockchains such as Ethereum and Solana (SOL), has caused Bitcoin to lose a large market share. For example, Solana's underlying technology has attracted the attention of many institutions and retail investors, and its price has skyrocketed from $1.50 to an all-time high of $250 in 2021.
Since then, BTC’s leading index has been unable to climb above 50%. The recent slow growth of BTC’s leading index may be related to ETH 2.0, Ethereum’s long-awaited shift to proof-of-stake, and the ongoing bear market.
Conclusion
In recent years, the development of the altcoin market has diluted Bitcoin's market share. Unlike in its early years when it had few competitors, Bitcoin now faces fierce competition from DeFi tokens, the hot NFT field, and thousands of other cryptocurrencies.
Even so, Bitcoin is still the cryptocurrency with the largest market capitalization, and the BTC leading index is unlikely to disappear in the short term. First, Bitcoin has a limited supply, and many investors regard it as a means of value storage, so it is called "digital gold."
The most important thing is that as the first cryptocurrency in the industry, Bitcoin's position is unshakable and it has an absolute competitive advantage in the digital asset market. However, based on past experience, as long as there is innovation, this first-mover advantage will not last forever. Whether other cryptocurrencies will shake the current position of Bitcoin and dominate the cryptocurrency market, let us wait and see.