Ethereum in decline: Top reasons for loss of dominance over the last 24 months

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Ethereum in decline: Top reasons for loss of dominance over
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Ethereum in decline: Top reasons for loss of dominance over the last 24 months
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Cryptocurrency dominance is a measure that indicates the share of a given cryptocurrency (usually Bitcoin) in the total value of the cryptoasset market. It is expressed as a percentage, comparing the market value of the coin in question to the market value of all cryptocurrencies combined. This metric is used to assess the relevance and influence of a specific coin in the crypto ecosystem. For example, Bitcoin’s high dominance may reflect investors’ greater confidence in or preference for it over other cryptocurrencies.

We generally have 3 main dominance indices:

The dominance of BTC (Bitcoin) reflects its historical and consolidated position as the main cryptocurrency on the market, being often seen as a store of value in the crypto universe. Generally, its dominance is high in times of greater caution in the market.

The dominance of ETH (Ethereum) highlights its relevance as the main platform for smart contracts and decentralized applications (dApps). It tends to increase during periods of interest in decentralized finance (DeFi) or NFTs.

Why did Ethereum lose dominance?

The dominance of Others represents the growth of altcoins (alternative cryptocurrencies), often driven by specific innovations, speculation or market cycles that favor smaller projects. An increase in this dominance could indicate diversification in the crypto market.

THE Ethereum chartin blue, shows how much cryptocurrency dominates the cryptoactive market. In red, we see the aggregate dominance of all other alternative cryptocurrencies cataloged in the TradingView system, excluding the 10 largest coins by market capitalization.

Note: the comparison here is not in absolute value, but rather considering each asset on its scale, in the 2-year time window.

Therefore, we observe the immense volatility of the altcoin market, justified by its smaller market capitalization. Above all, what draws the most attention is how Ethereum has lost market space in the last 18 months, going from 20% to 12% dominance.

What initially catches your eye are the periods of correlation between the price dynamics of the two assets. From June 2023 to December 2023, the altcoin market increased its dominance from 8.3% to 13.4%.

One of the main explanations for Ethereum’s loss of market share is the migration of investments from the ETH network to Layer 2 projects. Activities that were previously carried out on the Ethereum mainnet have migrated to scalability solutions such as Polygon, Arbitrum and Optimism. Although these projects are based on Ethereum, their market capitalization is not directly counted as part of ETH, which naturally reduces their dominance.

Ethereum in decline: Top reasons for loss of dominance over the last 24 months

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Ethereum in decline: Top reasons for loss of dominance over the last 24 months

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