The world's leading cryptocurrency by market value, Bitcoin, is crushing its rivals in the marketplace. As it experiences huge price volatility, it saw its value triple to near $14,000 per coin last week. The performance gap between the digital currency and its smaller rivals has widened this year even as Bitcoin has experienced downward pressure over the recent days, as outlined in a recent Wall Street Journal report.
Bitcoin's Performance Gap Widens
Over a recent seven-day period, Bitcoin rallied 36%, Ethereum gained 21%, XRP rose 5% and Litecoin fell 7%. As Bitcoin continues to see its price change rapidly, back down near $10,500 on Monday evening, its rapid moves resemble its major volatility at the end of 2017.
“There was definitely a view in 2017 that while Bitcoin was obviously the market leader, new technology and innovation would disrupt it,” said Richard Byworth, chief executive at blockchain financial services and technology company Diginex, to the Journal. “But now it just feels like Bitcoin is winning so much faster than anything else.”
Bitcoin has surged so much that it's traded as little as 40% below its 2017 high, when the digital coin skyrocketed to near $20,000 per coin. After crashing from its all-time high, it lost over four-fifths of its value, per the Journal.
While Bitcoin has made a stellar comeback this year, digital coins like Ethereum, Ripple Inc.’s backed XRP coin, and Bitcoin Cash, are still trading between 70% and 90% below their record highs, per CoinMarketCap.
Investors just aren’t piling into smaller digital currencies this time around. Bitcoin now accounts for around 62% of the total market value in the digital currency space, compared to just a third of the market that it made up in the 2017 rally. That said, the total market size has shrunk significantly, down from $800 billion at its height to just $325 billion currently.
Name Recognition, Institutional Interest
Given Bitcoin continues to outperform at this rate, it could open up an opportunity for crypto investors to buy smaller rival currencies at a bargain price. Yet some Bitcoin bulls are less willing to get into “riskier” crypto assets, attracted to Bitcoin’s name recognition and the growing institutional interest in the coin. As companies like Facebook Inc. (FB) jump into the cryptocurrency space, Adrian Lai, managing director of BlackHorse Group, foresees institutional money gravitating towards the most well-known digital coin.
Facebook’s plans for a new cryptocurrency called Libra, unveiled in June, largely drove the spike in Bitcoin’s price past the key $13,000 level.
“For a lot of people entering the crypto space, Bitcoin is often the entry point,” said Henri Arslanian, a crypto expert at PwC, to the Journal. He attributes much of Bitcoin’s rise to the phenomenon of “FOMO,” which stands for “fear of missing out.”
Bitcoin's rise also has turned a major Bitcoin fund, which makes the currency available to everyday investors, into a star, as outlined in another Wall Street Journal story. Grayscale Bitcoin Trust gained 192% for the quarter as of Thursday, according to Morningstar, outperforming all funds and other mainstream investments. By comparison, the S&P 500 gained just 3.8%.
Despite the growing optimism in the crypto world, with bulls cheering the end of the “crypto winter,” risk-averse investors should steer clear of the nascent industry. Bitcoin's wild swings in recent days make it a highly risky coin to own as it has soared 40% in recent days, and now is down near 25% from its high last week. Bitcoin’s crash in December 2017 caused Grayscale Bitcoin Trust, the same fund that is booming on the current rally, to post an approximate 75% loss in 2018.