When people ask, “How big is the crypto market?”, the answer mostly depends on how much bitcoin is worth. That’s because, in crypto, bitcoin is in some ways the only true “large cap” asset.
To get an idea of how much bitcoin is worth compared to others, consider the S&P 500 index, composed of large-cap stocks and used by traders as a benchmark for the market. Apple, worth $2.2 trillion, is worth about 6.5% of the entire index. Now, imagine if it were instead worth $20 trillion and were two-thirds the S&P 500. That’s the situation bitcoin is in relative to all other cryptocurrencies.
However, it is important to categorize crypto assets by size. The Digital Large Cap Index (DLCX) covers what might be considered the large-cap segment of the crypto asset universe: the top 70% by cumulative market cap. (This is the threshold MSCI, an index provider, uses to define the large-cap category.)
“Bitcoin dominance” is a metric that measures bitcoin’s share of the aggregate market cap of all cryptocurrencies. It’s also often used to measure investor interest in altcoins. The chart above shows the minimum bitcoin dominance rate in each quarter.
As bitcoin reached all-time highs, crypto’s total market cap rose above $2 trillion just at the end of the first quarter. However, bitcoin dominance slid to lows not seen in two years because the value of every other cryptocurrency combined rose faster than the first crypto. This underscores the need for an index capable of covering market dynamics like this.
Last quarter saw changes in the composition of the index for the first time since its inception in 2018. On Jan. 5, we excluded XRP, after the U.S. Securities and Exchange Commission sued the currency’s issuer, Ripple, alleging the asset is an unregistered security. Regulatory risk is one of the subjective index composition criteria.
Chainlink (LINK) was one of the top assets for the quarter by returns. The chart above shows how its average quarterly market cap reflected the gains, more than doubling, to cross the $10 billion mark.
That put the chainlink token into large-cap territory, but market cap is not the only criterion for inclusion. The index is designed to be replicable by U.S. financial institutions: firms that use it to trade or create financial products must be able to access liquid markets for the constituent assets.
The chart above shows chainlink’s sum quarterly volume in U.S. dollar trading pairs on exchanges that are accessible to U.S. financial institutions. This picture of chainlink’s liquidity is distinct from one that might include volumes reported by offshore exchanges and volumes in pairs against stablecoins and other cryptocurrencies. As the chart shows, chainlink’s volume on institutionally viable exchanges also doubled its previous quarterly high in Q1.
When bitcoin trades in a band, as it has for the past month, some investors begin to anticipate a dramatic break, in one direction or another. As chainlink’s data shows, Q1 brought dramatic changes in the altcoin landscape. That change is reflected in the DLCX. It’s just a hunch, but I feel it’s possible further shifts may be in store in Q2.