Other currencies surely dilute the market for Bitcoin. Some people use Monero over Bitcoin because it suits their needs better. In my case transactional privacy was very important so my money went into Monero. Some people want digital on chain contracts, so they invest in currencies allowing that.

The general thinking that Bitcoin is king and other currencies are leeches to its market is stupid. In the coming times there will be 5-10 currencies establishing dominance in market. Just like the USD isnt the only reserve currency