Shifting Cryptocurrency Influence: A High-Resolution Network Analysis of Market Leaders

TL;DR

This study uses high-resolution network analysis with novel hourly data and Kendall's Tau correlation to reveal dynamic shifts in cryptocurrency influence, highlighting Ethereum's rise and the growing influence of key cryptocurrencies over time.

Contribution

Introduces a high-resolution, network-based analysis of cryptocurrency influence using hourly data and Kendall's Tau, revealing dynamic market hierarchies and limitations of traditional methods.

Findings

Ethereum emerged as the market leader during the 2021 bull run.

Highly influential cryptocurrencies are increasingly gaining market influence over time.

Differences observed between hourly and daily data analyses highlight the importance of high-resolution data.

Abstract

Over the last decade, the cryptocurrency market has experienced unprecedented growth, emerging as a prominent financial market. As this market rapidly evolves, it necessitates re-evaluating which cryptocurrencies command the market and steer the direction of blockchain technology. We implement a network-based cryptocurrency market analysis to investigate this changing landscape. We use novel hourly-resolution data and Kendall's Tau correlation to explore the interconnectedness of the cryptocurrency market. We observed critical differences in the hierarchy of cryptocurrencies determined by our method compared to rankings derived from daily data and Pearson's correlation. This divergence emphasizes the potential information loss stemming from daily data aggregation and highlights the limitations of Pearson's correlation. Our findings show that in the early stages of this growth, Bitcoin held a leading role. However, during the 2021 bull run, the landscape changed drastically. We see that while Ethereum has emerged as the overall leader, it was FTT and its associated exchange, FTX, that greatly led to the increase at the beginning of the bull run. We also find that highly-influential cryptocurrencies are increasingly gaining a commanding influence over the market as time progresses, despite the growing number of cryptocurrencies making up the market.