Why Bitcoin? The US Dollar of Cryptocurrencies

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Here at Vardiz, a question commonly asked of us is: Why concentrate on Bitcoin? Considering there are currently over 2,500 different cryptocurrencies out there (and growing), why is it that Bitcoin is our sole and exclusive focus?

The reason is simple. In the world of cryptocurrencies, Bitcoin is analogous to the US Dollar. It is the most widely accepted and the most liquid cryptocurrency, with the highest market capitalization. It is simply put, the most dominant cryptocurrency… and it doesn’t look like this is going to change anytime soon — quite the opposite in fact.

The Narrative of Bitcoin’s Decline as the Dominant Cryptocurrency has been Disproven

The infamous “bull run” of 2017 saw the numerous alt-coins (i.e. cryptocurrencies other than Bitcoin) experience a rise in market cap that outpaced even the meteoric appreciation in Bitcoin’s itself. Note that I put the words ‘bull run’ in quotations because in retrospect, 2017 was a clear speculative bubble, fuelled by the Fear of Missing Out, the ability to purchase cryptocurrencies using credit cards, and the fact that there was no method yet of shorting or betting against the crypto markets to balance the sentiment.

That changed, as banks soon prevented crypto purchases using credit cards and the launch of the Bitcoin futures market in December 2017 allowed for the first time, the ability to short Bitcoin. Everybody knows what happened next, so it’s not worth repeating here. More pertinent to this article is that during the 2017 bull run, the rise of altcoins created a narrative that Bitcoin would soon get left behind.

The statistic that we will be looking at to examine this narrative is known as ‘BTC Dominance’; which reflects how much of the total cryptocurrency market is made up of Bitcoin alone. Prior to 2017 where the number of cryptocurrencies were few, this figure was at least 80%, which made sense. But as the crypto market went crazy in 2017, BTC’s dominance sharply declined.

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Source: Coinmarketcap (screenshot taken 6 Sep 2018)

As you can see, BTC’s dominance hit two low points, one in Q22017 and the other at Q12018. The first decline in BTC’s dominance coincided with the ‘rise of the alts’ while the second, very brief decline, came right after the crash in December 2017. Thereafter since Q22018, BTC’s dominance steadily increases, even as the number of altcoins continued to grow.

The Least Volatile Cryptocurrency

One of the main reasons, if not the main reason that people are hesitant to invest in cryptocurrencies istheir infamous volatility. To be sure, compared to the major fiat currencies, Bitcoin’s volatility is still extremely high by comparison. However among cryptocurrencies themselves, Bitcoin is by far the least volatile (discounting stablecoins which are explicitly pegged to fiat) making Bitcoin the best entry point into the cryptocurrency world for newbies.

This is not just an empty claim; the data bears it out. In June 2018, the American Institute for Economic Research (“AIER”) analysed the price movements of the major cryptocurrencies over a five-year period and determined that Bitcoin had the lowest average daily percentage change in price. They reached a similar conclusion when using more technical coefficients of variations as shown:-.

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Source: AIER

Bitcoin volatility charts show a general trend of decreasing volatility over time, with the anomaly being the speculative mania of 2017. Post-mania, the overall trend of decreasing volatility appears to be back on course.

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Source: Buybitcoinworldwide Volatility Index (screenshot taken 6 Sep 2018)

Of course, Bitcoin has quite a way to go before it reaches the calm fluctuations of major fiat currencies like the USD or GBP, or even gold. Based on the data above, Bitcoin’s volatility is approximately 8x to 10x more in comparison.

However, you must also consider that Bitcoin has only been in existence for less than a decade. When put in that perspective, Bitcoin has achieved a surprisingly high level of maturity in a relatively short amount of time.

Bitcoin — The Gateway into the Larger World of Cryptocurrencies

Even if you are more interested in altcoins compared to Bitcoin, Bitcoin is still the best and, in many cases, your only option to enter the larger world of cryptocurrencies. Because of various regulatory and banking hurdles, crypto-to-fiat exchanges are far less common than crypto-to-crypto exchanges. That means that to access many cryptocurrencies, you would need to acquire a particular cryptocurrency first, and the easiest cryptocurrency to acquire by far; is Bitcoin.

Bitcoin is the Most Widely Accepted Cryptocurrency

If you have US dollars, you can rest assured that they will serve you well in almost any country in the world, whether in the form of direct payments for local goods and services, or the ease of exchanging into local currency. Bitcoin acceptance has only continued to increase worldwide, particularly in the online-only space. A large part of this increasing acceptance is due to point-of-sale merchant tools, hedging facilities, and enterprise level wallets are by far the most developed for Bitcoin.

Japan, of course, continues to be the model for Bitcoin acceptance, largely due to the forward-looking nature on the part of its regulators.

Conclusion: Bitcoin is a Must-Have for Cryptocurrency Investments

Cryptocurrencies, despite all their ups and downs, are here to stay. Their open and permissionless nature offer distinct advantages over our current controlled and centralized fiat currency system. While they won’t be replacing fiat currencies anytime soon, or even… ever, smart investors ignore them to their own disadvantage.

Within the world of cryptocurrencies, Bitcoin remains king. As the cryptocurrency market matures, we believe hundreds of these altcoins will fade into obscurity (many already have). Over the long term, betting on cryptocurrencies doesn’t make sense without betting on Bitcoin.

Lead Broker & Compliance Officer at Vardiz Commerce. Former investment banker.

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