Summer 2017 has been big for Bitcoin. One bitcoin worth $1,533 on May 1st was exchanged for $4,335 yesterday, August 28. Not surprisingly, the interest for the cryptocurrency has skyrocketed. Blogs and news are divided between those who foresee a bitcoin worth $40,000 soon, and those who see a bubble about to burst. Time will tell.

While Bitcoin price has attracted a lot of media attention, fewer articles have stressed that Bitcoin is actually losing dominance in the cryptocurrency ecology. Its price and market share have been mostly anti-correlated for the past months or even years.

While Bitcoin price is now approximately 10 times higher than in jan 2016, its market share has nearly halved in the same period. Price is normalised to the value of Jan 2016. Figure courtesy of Abeer ElBahrawy.

Is it because of Ethereum? Not entirely. The explosion of the second cryptocurrency explains just part of Bitcoin’s decline, and it is easy to check that even the combined market share of Bitcoin and Ethereum have decreased (I spare you a second figure). What we are seeing is more than just a competition between two or few cryptos.

In fact, a deeper analysis shows that (i) the cryptocurrency market has been growing faster than Bitcoin, (ii) this evolution has been fairly ‘neutral’ (or ‘democratic’), investing the system as a whole and at all scales of cryptocurrencies, and (therefore) (iii) the relative ranking of cryptocurrencies has been far from fixed.

In this scenario, if Bitcoin loses its leadership there may be strong psychological (investors) and media reactions. But, from the point of view of the market dynamics we have observed so far, this would not be a surprising event.

See also: Bitcoin ecology: Quantifying and modelling the long-term dynamics of the cryptocurrency market arXiv:1705.05334 (2017) || and The Cryptocurrency Market Is Growing Exponentially, MIT Technology Review (2017).

Data from Coin Market Cap.