Bitcoin’s market power is at its highest level in years
Bitcoin continues to climb toward all-time highs it just reached in early 2024, but the volatility experienced by the token in the run-up to the US presidential election has increased compared to earlier periods this year. I'm doing it. Despite the volatile rise, the fact remains that Bitcoin price and Bitcoin interest rates continue to move in a positive direction, despite short-term setbacks. With increasing interest and investment in the sector by both major political parties, prices, trading volumes, and investor sentiment in the sector are on the rise. As has happened in past bull markets, the uptrend across the crypto sector has led to the re-establishment of Bitcoin's dominance and leadership.
Specifically, the share of total market capitalization captured by Bitcoin, which is used to determine Bitcoin's dominance, has risen to approximately 60% as of October 2024, which is expected to increase from April 2022. This is the highest level since March. Following the overall crypto price decline in 2022, and bottoming out with the FTX collapse in November 2022, Bitcoin's market share has continued to steadily increase since those events. In addition to the market capitalization aspect of market leadership, it is worth pointing out that institutional investor inflows and interest in cryptocurrencies continues to be centered around Bitcoin. For example, there are currently spot ETF products for both Bitcoin and Ether, but the Bitcoin ETF has attracted $18.9 billion, while the Ether ETF has attracted significantly less.
With this in mind, investors may be surprised to learn about some other major developments in the crypto sector. Let's take a look at some headlines that market watchers may have missed.
Stablecoins continue to gain traction
Given the rise in Bitcoin prices, steady inflows into spot Bitcoin ETFs, and the fact that legislation has been introduced advocating a strategic Bitcoin reserve, investors and policymakers are taking a backseat to stablecoins. It would be relatively easy to do so. However, doing so would not only ignore a part of the crypto asset sector that continues to grow in market capitalization, it would also ignore the potential addition of millions of new crypto users.
USDT and USDC continue to dominate the stablecoin sector, with the former maintaining its position as the largest and most commonly used stablecoin, and the latter being the most trusted crypto asset by the TradFi community. It continues to be ranked as one. Despite questions related to the business model, the ability of issuing institutions to weather high interest rates and the imminent potential of CBDC stablecoins will continue to be the cryptocurrency of choice for users looking to utilize cryptocurrencies as a medium of exchange. It is. It facilitates entry into cryptocurrencies for non-expert investors and is the crypto of choice for TradFi institutions seeking exposure to the crypto space.
These include the reality that PayPal, a well-known payment processing company in the United States and abroad, has announced a stablecoin to allow individuals and merchants to buy, sell, and hold cryptoassets, including PYUSD. are excluded.
ETF tax can be a headache
Spot crypto ETFs have been a goal of crypto advocates, investors, and entrepreneurs, and the approval of both a Bitcoin ETF and an Ether ETF in the same calendar year is understandably a huge win for the crypto sector. It was considered. That said, the Bitcoin Spot ETF introduces some tax considerations that are unique to cryptocurrencies and their classification by tax authorities. In the case of Bitcoin Spot ETFs, investors may face capital gains taxes when selling their shares, similar to other ETFs. However, because ETFs hold actual Bitcoin, there is an additional layer of complexity when it comes to tracking the cost basis of the fund's trades. Specifically, this is because upcoming IRS code changes will make both cryptocurrency tax reporting and compliance more complex and costly.
Another challenge is the taxation of in-kind redemptions. In-kind redemptions result in Bitcoin being delivered directly to the investor, potentially triggering a taxable event. Additionally, the frequent fluctuations in the price of Bitcoin can result in short-term capital gains, which are taxed at higher rates than long-term gains. Additionally, regulations and tax treatment of cryptocurrencies vary by country, so investors should consider the implications of international tax laws when ETFs are traded overseas.
Bitcoin centralization could be harmful in the long run
One of the least discussed trends in the recent crypto bull market is how the centralization of cryptocurrencies, especially Bitcoin, continues unabated and, in many cases, is accelerating. I mean, is it? Despite the rise in the price per token due to announcements and launches of Bitcoin-related or Bitcoin-adjacent products and services, the reality is that Bitcoin supply, Bitcoin sentiment, and the crypto market The whole thing continues to centralize.
Interrupting this reality are actions taken by nations such as El Salvador and Bhutan that have amassed strategic reserves for Bitcoin, and global financial services leaders such as BlackRock and Fidelity moving into the Bitcoin space. movement, and the desire for products that can be traded with Bitcoin. It was fulfilling for investors. While centralization will always be a factor in mass market adoption, proponents of Bitcoin's nation-state strategy need to be careful that it undermines one of the core tenets and appeals of this asset. .
Bitcoin has re-established itself as the leading crypto asset, but these levels of dominance may overshadow important trends for crypto investors.
