Medha Singh, Lisa Pauline Mattackal

(Reuters) – It is beginning to assert its supremacy over all other contenders for its crypto crown.

It was attacked by thousands upon thousands of digital coins in 2021. These competitors range from solana, polkadot to lightcoin and dogecoin. There is a high possibility that the market will fragment rapidly.

Bitcoin has managed to stem its market share loss this month and is now gaining ground as investors panic and seek relative security from the largest crypto player, while also having to contend with an aggressive Fed, talk of war in Europe, and other threats.

The Bitcoin share in the $1.68 trillion crypto-market has grown to around 42% from 39% just two weeks ago. It is the first time that it has seen an increase since falling from 46% at mid-October. According to CoinMarketCap, data which tracks 17225 cryptocurrencies on 458 exchanges.

Market experts caution that it’s premature to predict a trend. They also note that bitcoin is outperforming the market, but that the overall crypto market has dropped this month. Some say that 13-year old bitcoin may continue to gain from the prudent investment climate.

Matthew Dibb is chief operating officer for Stack Funds, a crypto-fund distributor based in Singapore. He stated that “if risk-off persists”, bitcoin will sucking up the liquidity crypto markets.

Most cryptocurrencies continue to take their price cues form bitcoin. However, some fund managers anticipate a gradual divergence (or decoupling) this year, which will need more discrimination.

“While many market observers could print a pretty penny (bitcoin investments) by just watching the assets they like go up last year, it is possible to do so again in 2022,” stated Jeff Dorman chief investment officer for digital asset management company Arca.

“Pockets filled with strength will sometimes emerge. Catching a few shifts this year will be crucial for your performance.”

SOLANA: COAL MINE CANARY?

The year has started with cryptocurrencies in a rough spot. Unnerved investors fled from the risk. However, bitcoin’s January 20% drop to $37,000 is still the lowest among top coins.

Ethereum, its main rival, is currently down 34%

The value of cryptocurrencies that can be linked to blockchains for decentralised financing applications has dropped even further. While polkadot has dropped 41%, whereas e-currencies jumped 100 times in 2021.

Although the selloff began in December, it was more stable and saw lower transactions than bitcoin’s last rout of May 2021 (which saw its volume drop by half in just nine days).

Michal Cymbalisty (Chicago-based), co-founder and chief executive of Domination Finance decentralized exchange, said, “A range between $30,000-$40,000 for a few days or even months wouldn’t shock me,” adding that concerns about a “crypto winter” were unfounded.

Analysts see solana, due to its rapid rise in 2021 as well as recent outages, the “canary” in the coalmine.

JPMorgan (NYSE 🙂 analysts often refer to solana’s use of non-fungible coins (NFTs), which has helped it gain market share at the expense of ether. BofA analysts say it “could be the Visa (NYSE 🙂 for the digital assets ecosystem.”

According to CoinGecko, Solana’s market capitalisation is more than $28 billion. This makes it the seventh largest crypto.

Dibb of Stack Funds said that Solana was a speculative cryptocurrency within the crypto ecosystem. As such, if it increases, demand for other altcoins should also rise.”

A further decline in investor risk appetite may also be a concern for some cryptocurrency investors. 

If there is an additional risk-off wave we might see Nasdaq fall another 5%, and cryptos could be destroyed. Cryptocurrencies aren’t a place of store value yet.