Bitcoin has existed in the public eye as the poster child for cryptocurrencies since its creation in 2009. Cryptocurrency is a broad term, encompassing digital or virtual currencies that use cryptoraphy for security, not issued by any central authority 1. Since the inception of Bitcoin, the underlying technology of the blockchain has attracted attention from institutions and investors 2. As a byproduct of this attention, developers have been inspired to imitate the Bitcoin model with new cryptocurrencies. As a pioneer in the field of blockchain technology, Bitcoin has enjoyed and continues to enjoy a dominant market status. However, in recent months, other cryptocurrencies have gained traction, reflected in their growing market caps.
Cryptocurrency Historical Performance
Source: CoinMarketCap, Figure 1: A retrospective graph of today’s five largest cryptocurrenciesy 3
This change is not only reflected in the raw growth of other cryptocurrencies, but also in Bitcoin’s declining share of the total market cap. From September 2015 to September 2016, Bitcoin’s market share fell from 85% to 79%, with a high of 91% in January 4.
- Bitcoin: Bitcoin remains the largest competitor in the cryptocurrency market, nearly 10 times the market cap of its nearest competitor.
- Ethereum: Ethereum is a decentralized platform for smart contracts, powered by the blockchain 5.
- Ripple: Ripple is a transaction technology for financial institutions to correspond without a central counterparty 6.
- Litecoin: Litecoin echoes the Bitcoin system as an online, mineable currency 7.
- Monero: Monero’s platform is focused on providing security and privacy for people interested in online currency 8.
Implications for Bitcoin
Bitcoin’s success will depend on its relative position to its competitors. As new technologies emerge, investors should monitor the successes of emerging cryptocurrencies. Continued decrease in Bitcoin’s total market share could signal trouble for the value of Bitcoin.
Despite Bitcoin’s waning total market share from September 2015 to September 2016, the market cap experienced tremendous growth over this period. While the growth of these competitors may initially seem to condemn Bitcoin to being overtaken, selecting today’s top cryptocurrencies creates an inherent sampling bias. During these same months, other cryptocurrencies decreased in value. The list of the top five cryptocurrencies of 2015 is a different list than exists today. By most measures, Bitcoin remains on top.