Bitcoin has soared this week, rocketing above $11,000 for the first time since August last year and adding around 20% in just a few days.
Some smaller cryptocurrencies have made massive gains in recent months as bitcoin treaded water, eating into bitcoin’s dominance—a measure of bitcoin’s value compared to the wider cryptocurrency market.
However, some have suggested bitcoin’s dominance should only be measured against other cryptocurrencies that are “attempting to be money,” putting bitcoin’s “real” dominance at almost 80%, up from just over 60% by other measures.
According to the new measure of bitcoin dominance, bitcoin currently makes up 79% of the cryptocurrency market—up from the 62% bitcoin market share calculated by the oft-cited crypto data website CoinMarketCap, which takes into account hundreds of cryptocurrencies that are all created and issued in different ways.
The Real Bitcoin Dominance Index, created by Buy Bitcoin Worldwide founder Jordan Tuwiner, calculates bitcoin’s market share among cryptocurrencies that are created, or “mined,” in a similar way to bitcoin.
The new bitcoin dominance index also excludes all cryptocurrencies issued as a form of fundraising, known as initial coin offerings (ICOs), cryptocurrencies tied to traditional currencies, such as tether, and other centralized projects, making it “a better measure” of the cryptocurrency market, according to Tuwiner.
“The issue with ICOs is that they are centrally controlled. Let’s say a bitcoin exchange releases stock legally via a token. Other dominance indexes would likely include that in their index. If so, then why not include the whole stock market? ICOs or stocks that are tokens are not trying to be money, and therefore should not be measured in a dominance index with bitcoin,” Tuwiner said via email.
“Bitcoin is competing as money and not as stock or a token. Stablecoins, while they are easier to transfer than normal fiat in a bank, are still just tokens backed by fiat. Coins that do not use proof of work can be pre-mined, or are not actually scarce since no real work is required to produce them.”
The Real Bitcoin Dominance Index is made up of 12 bitcoin rivals, including litecoin, sometimes referred to as “the silver to bitcoin’s gold,” bitcoin offshoots bitcoin cash and bitcoin SV, privacy-focused cryptocurrency monero, and “joke” meme-based token dogecoin.
“There’s likely hundreds if not thousands of coins on most dominance indexes that are artificially inflated,” Tuwiner said, pointing to “centralized ICOs” that “can pre-mine coins and create artificially high market caps.”
“None of the coins used in the index are pre-mined, besides ethereum,” Tuwiner said.
“There was a debate whether or not to include ethereum, but we ultimately left it since it’s the second biggest coin and is used by people as money. There is an option to turn it on or off because the crypto community is split on whether ethereum can function as money.”
If ethereum, which currently has a total value of $37 billion compared to bitcoin’s $204 billion, is excluded from the index bitcoin’s dominance increases to 92%.
Tuwiner feels that the dominance measures that include all manner of cryptocurrencies can create confusion about how other cryptocurrencies relate to bitcoin, saying: “I think it would be good for other sites to offer both metrics. One without ICOs or stablecoins—and one with the entire ‘crypto’ market capitalization.”
Others have expressed concerns that any measure of bitcoin dominance that uses cryptocurrency valuations could have issues.
“In general there are a lot of problems with using market capitalizations to determine dominance,” Jameson Lopp, the cofounder and chief technology officer of bitcoin storage service Casa, said via email, though he added, “the arguments made by the Real Bitcoin Dominance Index make sense to me.”
“Dominance generally seems like a vanity metric and different sites use different algorithms to calculate it. Trying to argue about which assets should qualify as money tends to devolve into subjectivity.
“I think that if you’re going to measure ‘dominance’ then it should be in the context of all forms of money that are competing with each other, not just crypto projects.”