A study conducted by Mr. John-Paul Thorbjornsen, an engineer and enthusiast of cryptocurrencies and blockchain technologies, better known in the crypto-verse as JPThor, concluded that Bitcoin (BTC) is the undisputable Crypto-King, with a market dominance of 80% over the rest of the altcoins.
Thorbjornsen developed a new weighing technique that provides a nonsubjective portrayal of the market sentiment. Using the “marketcap” as the quintessential indicator of how successful or dominant a crypto is, frequently turns out to be imprecise or wrong.
The Marketcap is a value obtained by multiplying the current price of a cryptocurrency by the total number of tokens in circulation at a specific time. This presents an opportunity to compare cryptocurrencies and rank them to understand how a specific token is accepted or valued by the market. However, this number can be conveniently manipulated by internal factors (such as premines) or third parties (such as Pump and dumps). JPThor believes that CoinMarketCap’s “Market Dominance” is a lamented metric:
“Market Cap on CMC is simply the market price multiplied by circulating supply, which many argue can easily be manipulated by things such as low volume, pre-mines and circulating supply malfeasance.
Thorbjornsen explains that the cryptomarket reacts very well to the characteristics of a Pareto-distribution, a form of equilibrium in which two variables have a directly proportional relation, but whose distribution responds to the nature that the 20% owns 80%, 20% is owned by the 80%”, which means that at any point in the graph, the distribution is the same.
Volume-Weighted Cap and Volume-Weighted Market Dominance
Instead of “pure” marketcap, JPThor proposes the application of an indicator he called Volume-Weighted Ca which takes into account other elements such as trading volume:
I deduced that Volume (liquidity) had to be weighted as a metric, so they were multiplied together to form another metric: “Volume-Weighted Cap ($²).” The lower the volume, the lower the overall score.
This technique allowed him to conclude that “the market spread was in fact a Power Law Distribution (but not strictly Pareto), and it required factoring in liquidity. In other words, the lower the trading volume, the less the value of the indicator.
According to Wikipedia https://en.wikipedia.org/wiki/Power_law, “In statistics, a power law is a functional relationship between two quantities, where a relative change in one quantity results in a proportional relative change in the other quantity, independent of the initial size of those quantities: one quantity varies as a power of another. For instance, considering the area of a square in terms of the length of its side, if the length is doubled, the area is multiplied by a factor of four.”
JPThor further elaborates:
Sorting the Top 67 coins by Volume-Weighted Cap, and then plotting Market Cap and Volume, it was immediately obvious that the Power Law best-fit scores were cumulatively much higher.
In the final part of his work, JPThor applies this methodology to the market volume reported by CMC. The researcher concluded that although BTC has a “pure” dominance of 55%, the Volume-Weighted Market Dominance shows a much higher influence. According to the results, BTC actually dominates 80% of the share, and this is trending up”.
In fact, just taking into account the Top 5 coins, Bitcoin (the 20%) captures over 85% of the market – thus it is a Pareto distribution, and actually much stronger. This is only testament to how strong the Schelling Point around Bitcoin is