Wit - stock.adobe.com

Scientific study reveals Bitcoin is not dominant in cryptocurrency market

Study into the ecology of cryptocurrencies has found that investors only consider market share when buying

Investors in cryptocurrencies do not consider price and underlying technology when they buy virtual currencies, but merely buy those with the highest market share.

A study of the cryptocurrency market from 2013 to May 2017 carried out by City, University of London and published in the Royal Society’s Open Science Journal, treated cryptocurrencies as ecological species.

It found that no cryptocurrency has shown a strong selective advantage over the others and that they all face an uncertain fate. “Bitcoin is not alone or invincible,” said Andrea Baronchelli, lecturer in the department of mathematics at the university, who co-ordinated the study.

The study used a simple evolutionary model that reproduces several key empirical findings, such as the distribution of cryptocurrencies, market capitalisation, or changes to the top-rank cryptocurrencies. 

Baronchelli, a physicist specialised in the study of social systems, said: “Cryprocurrencies are a beautiful example of a system based on consensus. Bitcoin isn’t anything, but we know people attach a value to it.”

He said most studies of cryptocurrencies in the past had looked at the top 10 in terms of market share, but this latest study covered about 1,500 cryptocurrencies.

According to the research, Bitcoin has been steadily losing ground to the immediate runners-up. “Users do not seem to have paid much attention to technological advancements so far,” said Baronchelli.

Read more about cryptocurrencies

Cryptocurrencies are on the rise, but why have digital currencies yet to reach the mainstream market?

The UK financial services authority has published warnings to consumers thinking of investing in initial coin offerings.

Financial services regulators in China have cracked down on the use of initial coin offerings to raise funds.

“Rather, our findings are compatible with a scenario in which investors choose which cryptocurrencies to invest in, proportionate to the cryptocurrencies’ market share, and nothing else.”

The results suggest that the evolution of the cryptocurrency market has so far been ruled by neutral forces, with no cryptocurrency showing any strong selective advantage over the others.

Baronchelli said the study also found that the number of cryptocurrencies created each week is balanced out by about the same number disappearing – about seven on average. “This means the number of actively traded cryptocurrencies has been stable,” he said.

Read more on Financial applications