Evolutionary Dynamics of the Cryptocurrency Market

16 Pages Posted: 19 May 2017 Last revised: 28 Nov 2017

Abeer ElBahrawy

City University London, School of Engineering and Mathematical Sciences

Laura Alessandretti

City University London, School of Engineering and Mathematical Sciences

Anne Kandler

Max Planck Institute for Evolutionary Anthropology

Romualdo Pastor Satorras

Polytechnic University of Catalonia (UPC)

Andrea Baronchelli

City University London - School of Engineering and Mathematical Sciences; City University London

Date Written: May 17, 2017

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.

Keywords: Bitcoin, Cryptocurrency Market, Modelling

JEL Classification: C00, C1, E26, E42, E51, F24, J33, O17

Suggested Citation

ElBahrawy, Abeer and Alessandretti, Laura and Kandler, Anne and Pastor Satorras, Romualdo and Baronchelli, Andrea, Evolutionary Dynamics of the Cryptocurrency Market (May 17, 2017). Available at SSRN: https://ssrn.com/abstract=2969708 or http://dx.doi.org/10.2139/ssrn.2969708

Abeer ElBahrawy

City University London, School of Engineering and Mathematical Sciences ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Laura Alessandretti

City University London, School of Engineering and Mathematical Sciences ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Anne Kandler

Max Planck Institute for Evolutionary Anthropology ( email )

Kurt-Schumacher-Str. 10
Bonn, 53113
Germany

Romualdo Pastor Satorras

Polytechnic University of Catalonia (UPC) ( email )

C. Jordi Girona, 31
Barcelona, 08034
Spain

Andrea Baronchelli (Contact Author)

City University London - School of Engineering and Mathematical Sciences ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

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