Evolutionary dynamics of the cryptocurrency market

TL;DR

This study analyzes the entire cryptocurrency market from 2013 to 2017, revealing stable statistical properties and demonstrating that ecological neutral models can effectively describe its evolution.

Contribution

It provides the first comprehensive analysis of the entire cryptocurrency market and links ecological neutral models to its evolutionary dynamics.

Findings

Market capitalization grows super-exponentially

Number of active cryptocurrencies remains stable

Neutral ecological models reproduce key market features

Abstract

The cryptocurrency market surpassed the barrier of \$100 billion market capitalization in June 2017, after months of steady growth. Despite its increasing relevance in the financial world, however, a comprehensive analysis of the whole system is still lacking, as most studies have focused exclusively on the behaviour of one (Bitcoin) or few cryptocurrencies. Here, we consider the history of the entire market and analyse the behaviour of 1,469 cryptocurrencies introduced between April 2013 and June 2017. We reveal that, while new cryptocurrencies appear and disappear continuously and their market capitalization is increasing (super-)exponentially, several statistical properties of the market have been stable for years. These include the number of active cryptocurrencies, the market share distribution and the turnover of cryptocurrencies. Adopting an ecological perspective, we show that the so-called neutral model of evolution is able to reproduce a number of key empirical observations, despite its simplicity and the assumption of no selective advantage of one cryptocurrency over another. Our results shed light on the properties of the cryptocurrency market and establish a first formal link between ecological modelling and the study of this growing system. We anticipate they will spark further research in this direction.