BTC Dominance: The 'Why' Behind the Market Cap Totem Pole

Market cap is a reasonably accurate indicator of an asset’s share of an ecosystem. You might expect that as more innovation enters the web3 space, there would be a vicious cycle of the dominant cryptos- but this isn’t the case. Why?

Here’s the skinny; the most battle-tested tech wins. Let’s say a ‘new’ Bitcoin comes out with cool new features; it should be ‘better’ and thus have a higher market cap, right? No. There’s one major problem: the whole point of Bitcoin was to remove the possibility of fraud in an economic system… The primary value that it brings to the table is trust-minimized financial transactions. Each day that the Bitcoin network continues to function properly is another badge of success marked on the calendar, and as the oldest network of all modern cryptos, it will endlessly dominate in this regard. No Bitcoin spin-off can usurp the OG, as they’re all eternally doomed to be the fresh meat, relatively.

Ethereum is not limited to the #2 spot on the market cap leaderboard by the same logic as above. Ethereum is a different organism; smart contracts enable a second value prop of trustless code execution. If Ethereum is able to offer trust-minimized financial transactions and trustless code execution, then it should have a higher market cap, right? Not until the total value of these two properties surpass that of BTC’s single property. Bitcoin’s trust-minimized financial transactions have been assessed by the market to be more valuable than Ethereum’s, thanks to the continually longer battle-tested history.

Ethereum will surpass Bitcoin on the market cap leaderboard once trustless code execution provides enough value to overcome Bitcoin’s longer track record of successful operation. This will happen as smart contracts increasingly provide value to the world, particularly as they replace middlemen with better/faster/cheaper systems.

Sure, there are more value props, more factors that influence the market cap rankings, but this is the tldr: Among similar organisms, the oldest surviving member wins. Among differing organisms, the organism that provides the most value to the world wins.