This is a guest post by professors Neil Gandal (Berglass school if economics, Tel Aviv University) and Joshua Gans (Rotman School of Management, University of Toronto), advisors to the Orbs project.

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Boom-and-Bust: Cycle #1

Bitcoin rose from $150 to $1,000 in late 2013.  During the rise, other “prominent” coins like Litecoin rose faster than Bitcoin. Following the bursting of the bubble, Bitcoin fell to $400 in a very short period of time. The other cryptocurrencies fell as well.

Bitcoin remained at around $400 from the end of April 2014 to the end of February 2016. In contrast, all of the other major cryptocurrencies lost at least two-thirds of their value between April 2014 and February 2016.  Other altcoins grew more quickly than Bitcoin during the boom part of the cycle – and fell further than Bitcoin during the bust part of the cycle.

In early 2016, Bitcoin accounted for 94% of the total market capitalization (referred to as Bitcoin’s dominance in the lingua franca,) while Litecoin (the number two cryptocurrency) accounted for 2%.

Boom-and-Bust: Cycle #2

Bitcoin then began rising again and by early 2017, the value of bitcoin was again more than $1,000. It had taken more than three years for the value of bitcoin to return to the 2013 peak level, but that was only the beginning. Eventually, in December 2017, Bitcoin reached a peak of more than $19,000 before plummeting over the next few months to $6,000.

Again the boom-and-bust cycles had similar properties to the earlier episode in 2013-2014.  During the upside, other prominent cryptocurrencies rose faster than Bitcoin, while during the downside, these currencies fell be more than Bitcoin.

Bitcoin’s dominance fell dramatically during the boom part of the second cycle from 95% at the beginning of 2017 to just 37% at the end of the year (the peak of the market.)  By the end of 2018, it had risen to 55%

Another Boom-and-Bust cycle?

In 2019, Bitcoin rose from around $4,000 to nearly $14,000 in June.  Currently (August 7, 2019,) Bitcoin is trading around $11,900.

This boom is different from the two earlier cycles because the other prominent coins have declined during Bitcoin’s latest meteoric ride. Here are some numbers:

• Relative to Bitcoin, the number two cryptocurrency in market capitalization, Ethereum, has fallen by 58% against Bitcoin since the beginning on 2019! (On January 1, its value was 0.036 BTC.  On July 20, 2019, its value was 0.021 BTC.)
• Ripple, the number three cryptocurrency in market capitalization has fallen by 68% against since the beginning on 2019! (On January 1, its value was 0.000095 BTC.  On July 20, 2019, its value was 0.000031 BTC.)

During this boom, Bitcoin’s dominance has increased from 55% at the beginning of 2019 to 66% today.  Bitcoin’s dominance is higher than it has been any time in the last two years. During the last two booms, Bitcoin’s dominance fell.  The opposite has occurred this time around.  What does this mean?  Is the cryptocurrency market returning to a single dominant coin? As usual, only time will tell.