The cryptocurrency rally will slow down, simple maths says

The current rate of market expansion is not sustainable

The capitalisation of the cryptocurrency market has experienced a faster-than-exponential growth for — at least — the past two years (see our paper and this nice piece on it). And exponential growth is already very fast. It means that the growth rate of the value of a mathematical function is proportional to the function’s current value. The bigger you are the faster you grow, so that you become bigger more rapidly and further speed up your growth.. and so on.

Thus, while the debate on the fate of cryptocurrencies becomes noisier and noisier (China, CEOs, Switzerland, etc), Fabiano Ribeiro, Laura Alessandretti (Postdoc and PhD student here at City) and I made the simplest exercise. We identified the mathematical model that better describes past growth by fitting the available data and used that model to extrapolate what would happen in the future if nothing changed. We obtained the figure below.

The linear curve is stretched exponential y~exp(at^b) fitted to the data using non-linear least squares. Value of b reported in figure.

At the current pace, the market value would exceed the GDP of the World (or GWP) in a year or so, hitting other milestones well before that. So, while it is difficult to say what will trigger the change, we know for sure that the behaviour we have observed for the past two or three years will not last long. The question is not if the market growth will slow down but what is going to happen next.

Data from Coin Market Cap.

Technical PS: There is some intrinsic uncertainty on the time at which it is best to start the fitting procedure and on the parameters obtained. We did a few other tests obtaining similar results.