Arcane Research analized bitcoin's dominance on the cryptocurrency market, taking into account its liquidity, and came to the conclusion that the share of bitcoin in reality is about 90%.

The report of Arcane Research shows that the real dominance index of bitcoin is much higher than it was commonly believed. Typically, the dominance index is calculated based on the market capitalization of the coin. That is, the total price of all circulating supply, and dividing it by the total market capitalization of all coins. This indicator is used as a measure of the weight of a particular cryptocurrency or token of a blockchain project. Currently, bitcoin dominates the market with a share of almost 70%. The remaining 30% is distributed between altcoins.

But this approach does not take into account one of the most important indicators which is the liquidity. Tokens of many blockchain projects, especially when it comes to utility tokens, are rarely in demand by investors for hodling.

“However, this measure is deeply flawed and actually underestimates the relative strength of Bitcoin in terms of relative valuation. Market capitalization without considering liquidity is meaningless,” the research reads.

The report notes that “one could easily create a cryptocurrency with 1 billion premined coins, and do one trade at say 3 dollar each. This would lead to a total market capitalization of $3 billion, which would represent 1% market dominance with today’s valuations and inflate the total market capitalization.”

“The problem is that the calculation does not take liquidity into account. One might be able to sell one token for 3 dollars, but what happens if you want to sell 1 million?”

Taking liquidity into account in calculating the dominance index is not an easy task. It is necessary to take into account price movements when executing a large order, trading volume, spread, the difference between buy and sell prices. The wider the spread, the lower the liquidity.

Arcane analysts calculated adjusted bitcoin dominance indes based on liquidity. The result showed that the real index of bitcoin dominance exceeds 90%, while altcoins account for less than 10%.

When calculating the dominance index, Arcane analysts excluded stablecoins backed by real assets. They note that including tokenized assets in the calculation of the dominance index is just as meaningless as, for example, taking Apple shares into account if they were tokenized.

Arcane experts conclude that the liquidity-adjusted bitcoin dominance index suggests that it is bitcoin that is best suited to become the currency of the Internet.