2018, Has The Crypto Currency Market Become More Stable?

Long-term properties of the market stable in the bad times

We knew the cryptocurrency rally would end, and it did. Ethereum has lost 94% of its value since January and the total capitalisation of the market has shrunk almost 7 times.

But how does this fit into the long-term behaviour of the market? In out paper Evolutionary dynamics of the cryptocurrency market we showed that several statistical properties of the market have been stable for years and that the neutral model for evolution captures them. Is this still true?

Yes it is. Observed from afar, 2018 has not been that special. The market share distribution is still characterised by the same long tail [A), in figure] and the dominance of bitcoin has actually bounced back closer to what the model would predict [D), in figure], although we would not bet this is not a coincidence.

Neutral model for evolution and empirical observations. A) Distribution of cryptocurrencies market shares. The dashed line is the power-law curve with exponent α=1.5. B) Turnover of the ranking distribution. C) Average number of generations of a cryptocurrency (grey lines) and a species in the neutral model (blue line) occupies a given rank. D) Evolution of the market share of Bitcoin (grey line) and the expected market share of the first species in numerical simulations (blue line). More info here. Figure credits: Abeer ElBahrawy.

However, the 2018 curves in panels B) and C) indicate that the top positions of the ranking have been more stable. Fewer cryptos made it in the top 25 and on average high ranks were occupied for a longer time. A signal that we might interpret as a maturation of the market. In general, the conclusions of our paper stay valid, apparently. What we have observed is

compatible with a scenario where technological advancements have not been key so far [..] and where users and/or investors allocate each packet of money independently.

OK, I hear you. “Is this of any practical utility?” Probably not. If you are into investing, then your paper is Anticipating Cryptocurrency Prices Using Machine Learning, which does not contain any tips but reports on some fun exercises we made. Happy Holidays!

PS: As usual, the sense of this post is: we could have expected a dramatic change, we do not see it. Rigorous statistical analysis would be needed in order to conclude that things are still exactly the same.