Since Bitcoin’s introduction in 2009, interest in cryptocurrencies has soared. One manifestation of this interest has been the explosion of newly created coins and tokens. In this paper, we analyze the dynamics of this burgeoning industry. We consider both cryptocurrency coins and tokens. The paper examines the dynamics of coin and token creation, competition and destruction in the cryptocurrency industry. In order to conduct the analysis, we develop a methodology to identify peaks in prices and trade volume, as well as when coins and tokens are abandoned and subsequently “resurrected”. We also study trading activity. Our data spans more than 4 years: there are 1082 coins and 725 tokens in the data. While there are some similarities between coins and tokens regarding dynamics, there are some striking differences as well. Overall, we find that 44% of publicly-traded coins are abandoned, at least temporarily. 71% of abandoned coins are later resurrected, leaving 18% of coins to fail permanently. Tokens experience abandonment less frequently, with only 7% abandonment and 5% permanent token abandonment at the end of the data. Using linear regressions, we find that market variables such as the bitcoin price are not associated with the rate of introducing new coins,more »
The rise and fall of cryptocurrencies
Since Bitcoin’s introduction in 2009, interest in cryptocurrencies has soared. One manifestation of this interest has been the explosion of newly created coins. This paper examines the dynamics of coin creation, competition and destruction in the cryptocurrency industry. In order to conduct the analysis, we develop a methodology to identify peaks in prices and trade volume, as well as when coins are abandoned and subsequently “resurrected”. We study trading activity associated with 1 082 coins over a nearly five-year period. We present evidence that the more frequently traded coins experience the biggest price rises. They are also much less likely to be abandoned, that is, to experience a drop in average trading volume to below 1% of a prior peak value. Overall, we find that 44% of publicly-traded coins are abandoned, at least temporarily. 71% of abandoned coins are later resurrected, leaving 18% of coins to fail permanently. We then examine the association between entry and exit and other key variables such as price, volume, and market capitalization in order to analyze and provide intuition underpinning the fundamentals in this market. We conclude by examining the bursting of the Bitcoin bubble in December 2017. Unlike the end of the 2013 bubble, some alternative cryptocurrencies continue to flourish after the fall of Bitcoin.
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- Workshop on the Economics of Information Security
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- National Science Foundation
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