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Layer one blockchains decoupling from Bitcoin


cryptodaily.co.uk 03 January 2022 14:02, UTC
Reading time: ~3 m

The leading layer one blockchains by transaction volume and total value locked (TVL) are starting to ignore the general Bitcoin price movement, and have risen strongly against the number one cryptocurrency over a number of months.

Up to recently, the crypto space had always followed the same trend, whereby Bitcoin has moved the strongest, followed by Ethereum, and then the rest of the altcoins. 

However, this pattern is now starting to turn on its head and change significantly. Bitcoin still generally dominates most of the small cap alts, but various layer one blockchains are breaking the mold and are moving so strongly against Bitcoin that they are tipping the BTC dominance in their favour.

BTC Dominance chart

As can be seen in the BTC dominance chart, 40% is the line in the sand for Bitcoin to get the bounce and try to reverse the trend. However, with Layer one blockchains such as Solana, Terra Luna, Avalanche, and Fantom, all continuing to outperform Bitcoin, it certainly looks like dominance could well make its way down further at some point. 

35% is the lowest it has ever been back in the crazy altcoin season of the beginning of 2018, just after Bitcoin had reached its $20,000 top. However, with these layer one blockchains now providing so much utility for the entire crypto ecosystem, the dominance could well drop to 30% and below.

That isn’t to say that Bitcoin dominance won’t push up first in the short to medium term. Technical signs in the Bitcoin dominance chart do point to some kind of bounce, with the RSI and Stochastic both looking favourable, plus a triple bottom pattern in play.

Even though this looks like it will affect the vast majority of the altcoins, the very strong plays, such as those already mentioned, plus a small selection of other alts with large growth and strong fundamentals should buck the trend.

AVAX/BTC

SOL/BTC

LUNA/BTC

FTM/BTC

Ethereum also has a nice chart against Bitcoin. A cup and handle with a recent test of the top of the cup looks particularly healthy for the second biggest cryptocurrency. However, the size of the ETH market cap against the other layer ones points to less growth in comparison.

Also, high gas fees, and a congested blockchain makes this a much less exciting prospect, at least until ETH 2.0 is fully implemented. The other layer ones beat the Ethereum blockchain hollow in this respect, but the rise of layer twos to solve Ethereum’s problems do add some spice to the mix. 

Regardless of whoever wins the race to become the preeminent layer one blockchain, it might well be argued that they all provide more utility than Bitcoin. As the crypto ecosystem grows, surely Bitcoin dominance must move lower. It’s just a case of how much lower.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.


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