Almost 99% of the crypto market is dominated by BTC, ETH & top 3 stablecoins

Contagion fears have spooked investors as they fled to safer assets like Gold. Although the broader crypto market has benefitted generally, thinking this would force the Federal Reserve to slow down on their hikes — we would need to see the volatility settle down to figure out which way the market eventually turns. 

Today, however, we look at how some digital assets dominate the crypto market. Although determining the exact amount of capital inflows and outflows in the digital asset market can be challenging, it is often observed that capital initially flows through two major cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), or stablecoins. 

Therefore, a combination of the Realized Cap for BTC and ETH, along with the circulating supply of major stablecoins, can provide a reliable measure. By using this approach, we can see that the current total market value is approximately $677 billion, which is a 20% decline from the all-time high (ATH) of $851 billion recorded one year ago. 

BTC holds a 56.4% dominance, followed by ETH with 24.5%, while USDT, USDC, and BUSD account for 17.9%, and the remaining 1.2% is attributed to LTC (top chart below). Together, these five cryptocurrencies account for a significant portion of the overall cryptocurrency market. This dominance has both positive and negative implications for the cryptocurrency industry. 

On the one hand, it provides stability and liquidity to the market, which can encourage more mainstream adoption of cryptocurrencies. On the other hand, it can also lead to a concentration of power among a few large players, potentially limiting the development of smaller, innovative cryptocurrencies — recent USDC de-pegging also warned of the dangers. 

Digging deeper into the stablecoin market, Since mid-2020, Tether’s dominance within the stablecoin market had been declining structurally (bottom chart above). However, due to the recent regulatory actions against BUSD and concerns surrounding USDC this week, Tether’s dominance has surged back above 57.8%. 

USDC has maintained a dominance of 30% — 33% since October 2022, but it remains to be seen whether its supply will decrease after the re-opening of the redemption window. On the other hand, BUSD has experienced a significant decline in the past few months, with issuer Paxos discontinuing new minting, causing its dominance to plummet from 16.6% in November to just 6.8% at present. 

Following a tumultuous week for the digital asset industry, the U.S. has lost three crypto-friendly banking institutions and is facing a growing regulatory crackdown. Despite this, investors have responded similarly to the aftermath of the FTX situation by transferring stablecoins into exchanges and opting to hold BTC and ETH in their own custody. 

However, in the bigger picture, the industry has seen a net outflow of approximately $5.9B over the past month. These events highlight the uncharted territory the industry and the global financial system find themselves in — underscoring the reasons why Bitcoin was created as a scarce and trustless digital asset.