Luna Incident... Dominance of Cryptocurrencies Outside Top 10 by Market Cap Continues to Drop

Decline in Trust Leads to Weakened Investment Sentiment

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] Amid the slump in the cryptocurrency market caused by the Luna Classic crash, it has been confirmed that the proportion of coins ranked outside the top 10 by market capitalization is showing a decreasing trend in their share of the total market capitalization.

According to CoinMarketCap, a global cryptocurrency market status relay site, as of midnight on the 9th, the market capitalization share of cryptocurrencies outside the top 10 was recorded at 15.30%. This is a decrease of 0.08 percentage points compared to 15.38% the previous day, and a 5.23 percentage point drop from 20.53% in early last month before the Luna Classic crash incident.

The market capitalization share of cryptocurrencies outside the top 10 had maintained the 20% range since April 2021. This was also the case in November last year, when the cryptocurrency market experienced an all-time boom, with Bitcoin prices soaring to around $66,900. Although investment sentiment weakened this year due to concerns over the U.S. Federal Reserve’s interest rate hikes, the share remained above 20%. However, since the Luna Classic incident on the 11th of last month, the share began to decline sharply. It dropped from 18.86% on the 11th to 16.46% on the 12th, and shrank further to 14.89% on the 13th. It slightly rebounded to 16.36% the following day but has since remained in the 15% range.

The decrease in the market capitalization share of cryptocurrencies outside the top 10 after the Luna Classic incident is due to a general decline in trust in coins and a contraction in investment sentiment. Luna Classic, which once surpassed 50 trillion won in market capitalization and rose to 8th place, crashed by 99.99% in just over a week. On the other hand, Bitcoin dominance?the proportion of Bitcoin in the total cryptocurrency market capitalization?has increased following the Luna Classic incident, rising from 41.85% in early last month to 46.54% on this day. This is interpreted as the market capitalization of cryptocurrencies outside the top 10 falling more sharply than Bitcoin’s market capitalization. The market capitalization share of Ethereum, the leading altcoin, also decreased from 19.31% on the 1st of last month to 17.51% on this day.

Recently, a bleak forecast has emerged that thousands of existing cryptocurrencies may disappear. According to U.S. economic media CNBC, there are more than 19,000 types of coins in the cryptocurrency market. Brad Garlinghouse, CEO of Ripple, questioned whether 19,000 new currencies are necessary and predicted that only a few dozen cryptocurrencies will survive in the future. Bertrand Perez, CEO of the Web3 Foundation, said, “(Currently) there were many dot-com companies, and many of them were scams that created no value, similar to the early days of the internet,” adding, “Only very useful and legitimate companies remain.”

However, like Bitcoin, the market capitalization share of stablecoins designed to be pegged to fiat currencies, such as Tether (USDT) and USDC, has increased. Although distrust arose due to the collapse of another stablecoin, TerraUSD (UST), these stablecoins maintain their value through safe assets like cash or government bonds, unlike UST, which was algorithmically collateralized by Luna Classic. Additionally, due to their low volatility, they are still used as base currencies for purchasing cryptocurrencies and can earn interest when deposited in DeFi, which is believed to sustain demand. The market capitalization share of USDT increased by about 1 percentage point compared to before the incident, and USDC increased by about 1.5 percentage points.

Hong Ki-hoon, a professor of business administration at Hongik University, explained, “USDT or USDC, which are stablecoins like UST, can replace UST’s position, and since they serve the role of cryptocurrency exchange, demand can continue in the short term,” adding, “However, if the trading volume of Bitcoin or altcoins decreases, the use of USDT and USDC will also decline, eventually leading to a decrease in demand.”

This content was produced with the assistance of AI translation services.