Bitcoin alternatives are closing the gap with the market leader after names such as stellar and cardano became red-hot as 2017 was closing.
The biggest cryptocurrency's share of market value has fallen to a record 36 per cent from 56 per cent a month ago, according to CoinMarketCap prices for coins and tokens. Stellar, designed for cross-border payments, has more than doubled in the first trading days of this year, achieving a record market cap of more than $13-billion (U.S.).
That kind of move raises questions as to whether speculators will drive up second-tier digital coins at the expense of bitcoin, even though they have different purposes. The paper value of all cryptocurrencies combined has more than doubled to almost $700-billion in the past month.
"The altcoins today, in large part, are not trying to be bitcoin competitors," said Lex Sokolin, global director of fintech strategy at Autonomous Research LLP in London. "They are doing something else entirely – ethereum as a smart-contracts platform, iota as a machine-economy token, ripple for interbank payments, and so on." How each is used "should become increasingly relevant as the novelty of crypto wears off."
Relative performance is now a multibillion-dollar question as professional investors search for ways to value digital assets that seem to defy traditional techniques, such as profit and dividend potential for equities, or industrial-demand outlooks for commodities. Correlation, for example, is one of many technical-analysis tools used across asset classes in forecasting and altcoins historically have moved mostly in step with bitcoin.
While there were many periods of disparity, on balance the group rose or fell together, a Bloomberg survey of more than 5,000 data points show from CoinMarketCap and CoinCap prices. With bitcoin rivals now making bigger gains, it matters more whether the group continues moving mostly in sync – as they largely have done ever since the early days when enthusiasts were mostly computer programmers and libertarians.
While naysayers insist the cryptomarket has many signs of a bubble, speculating has been promising for many who bought second-tier coins. Ethereum, the second-largest by market value, has roughly tripled in the past two months. Cardano is up more than fortyfold in the period. That compares with an approximate doubling for bitcoin, which went more mainstream in December by sporting its first U.S. futures contracts. Bitcoin rose 2 per cent on Wednesday.
The technical shortcomings of bitcoin signal its benchmark status may be taken away some day by a second-generation rival, according to Mike McGlone, a commodity strategist at Bloomberg Industries, who likens the market to internet-based companies a few decades ago.
"When the frenzy subsides, 2Gs should continue to gain on bitcoin, which has flaws and where futures can be shorted," Mr. McGlone wrote in a note last week. "Ethereum appears prime to assume benchmark status, though bitcoin forks ripple and litecoin are the primary up-and-coming contenders."
With a $216-billion market value on Dec. 31, bitcoin was often the first stop – and maybe the last – for investors who then maybe dabbled in smaller, more volatile tokens. A surge in investor interest typically benefits the smallest more, simply because they have smaller market values, said Spencer Bogart, a partner at Blockchain Capital LLC in San Francisco.
"This goes both directions though: Often, when cryptomarkets are falling, you see a rotation out of the long-tail of cryptoassets and into bitcoin, the 'king of crypto,' which is rightfully perceived to have the most staying power in the ecosystem," Mr. Bogart said.
As the cryptoparty grew bigger, the crashers – blue-suited investors and hedge funds – have purchased mostly bitcoin and they have different buying criteria than early converts who may have moved on to less-liquid units such as dash or monero, according to industry observers. The diluted investor base may weaken the yoke to bitcoin, the biggest by market value, they say.
"The capital base of these markets is evolving rapidly," said Kyle Samani, managing partner of Multicoin Capital, a digital-asset hedge fund in Texas. "Before the recent bitcoin bull run, the investor base in crypto was mostly engineers, nerds and libertarians."
Top 10 cryptocurrencies of 2017 (In U.S. Dollars)
Launched in 2012, Ripple had a market cap of $91.79-billion as of Tuesday, second after Bitcoin. It is used by companies such as UBS and Santanderr as payment technology.
- Percentage gain in 2017: About 35,000 per cent
- Trading price as of Wednesday: $2.73
NEM is a peer-to-peer cryptocurrency platform. It is used in a commercial blockchain called Mijin, tested mainly in Japan, by financial institutions and private companies.
- Percentage gain: About 29,000 per cent
- Trading price: $1.27
In October, 2017, Stellar and IBM entered into a deal to improve the speed of global payments.
- Percentage gain: Close to 14,000 per cent
- Trading price: About $0.76
Originally launched as XCoin in early 2014, Dash got its name in March, 2015. Transactions done with Dash get confirmed in seconds, whereas Bitcoin transaction can take up to 10 minutes.
- Percentage gain: About 9,300 per cent
- Trading price: $1,162.84
Ethereum's main aim is to operate "smart contracts," instead of acting as a form of money. Smart contracts are scripts of code that can be deployed in Ethereum blockchain.
- Percentage gain: About 9,200 per cent
- Trading price: $879.91
Introduced in October, 2011, Litecoin is very similar to bitcoin. It is No. 6 in terms of market cap, according to CoinMarketCap.
- Percentage gain: About 4,800 per cent
- Trading price: $250.31
Cardano was founded in 2014 and began trading on Bittrex exchange in October, 2017. Within three months, it has garnered a market cap of over $18.6-billion, to secure itself at the fifth position (in terms of market cap).
- Percentage gain: Close to 3,000 per cent
- Trading price: About $0.99
Invented by an unknown person/group called Satoshi Nakamoto, bitcoin was released in January, 2009. Bitcoins are created by mining and was the first decentralized cryptocurrency.
- Percentage gain: Over 1,200 per cent
- Trading price: $15,003.90
Bitcoin Cash (BCH)
Born from bitcoin itself, Bitcoin Cash is a segregated version of bitcoin.
- Percentage gain: Over 500 per cent
- Trading price: $2,748.33
With a market cap of about $11.19-billion, IOTA is ranked ninth, according to CoinMarketCap.
- Percentage gain: Over 450 per cent
- Trading price: $4.03