Although the global cryptocurrency market has been volatile in recent days, forcing cryptocurrencies like Terra (Luna) to lose all value, Bitcoin has remained relatively stable.
On May 27, the Bitcoin Market Dominance index, which compares BTC’s market capitalization to the rest of the cryptocurrency market, hit a new high of about 47%, the highest since October 2021. Here are possible reasons why traders are fleeing the altcoin market in search of safety in Bitcoin.
Ethereum Upgrade Delays
The largest altcoin by market cap, Ethereum’s native token Ether (ETH), has shown continuous drops in market domination in the last five months, falling from 22.38 percent in December 2021 to 17.86 percent in May 2022. The drop follows a two-year rise in which ETH/BTC increased by more than 200 percent between September 2019 and December 2021.
In recent years, Ether has outperformed Bitcoin, owing to the excitement surrounding its long-awaited protocol upgrade, dubbed “the Merge,” which aims to make Ethereum more scalable and less expensive.
However, the upgrade, which attempts to convert Ethereum’s blockchain from proof-of-work to proof-of-stake (a counterpart known as Beacon Chain), has been delayed several times.
According to OxHamZ, an independent market analyst, Ethereum lacks narratives to push ETH’s price upward following the Merge update, as investors have already “priced in” the network upgrade hype.
Fall of Terra
The fall of the Terra (LUNA) market looks to have contributed to Bitcoin’s newfound crypto market strength. In May, the value of LUNA/BTC, a financial instrument that measures the Terra token’s power against Bitcoin, plummeted 99.99 percent to 0.00000004, rendering it virtually worthless.
Meanwhile, LUNA fell in value against the dollar, fueling speculation that traders were selling the token in favor of BTC and cash.
Altcoins are Dead Inside
The altcoin market as a whole, which includes everything from large-cap blockchain projects to questionable crypto assets, has dropped roughly 65 percent since peaking above $1.7 trillion six months ago.
A closer look at several tokens reveals that, unlike Bitcoin, the majority are down over 80% from their all-time highs, indicating a general investor shift away from altcoins and toward cash, stablecoins, or BTC.