Six months on... the crypto reshuffle

Sunday 15 June 2014

TL;DR. 2014 is the year crypto got serious. Bitcoin remains king, quite possibly forever. Litecoin is on the wane. Anonymity is big but can’t win (DRK). A coin needs more than a meme to keep it going (DOGE). Devs, community and marketing matter (NXT). Get organisational relationships wrong and you’re dead (RIPple).

Life moves fast in cryptoland. As we’ve seen in just the last few weeks, markets movements can reverse, accelerate and re-reverse literally overnight. On the scale of months rather than weeks, this can completely change a landscape that everyone once took for granted.

2014 was always going to be the year that Bitcoin – and crypto more generally – came of age. In this article, I’d like to compare what’s going on in the worlds of Bitcoin and the now-leading alts compared to the situation six months ago, w

hen euphoria and hype rather than fundamentals set the agenda. That, in turn, should tell us a little about the factors that are driving cryptocurrency interest and adoption, and some of the developments to anticipate over the coming months.

I’d like to start with a couple of images, both from CoinMarketCap.com, which lists around 300 cryptocurrencies in order of market cap. The first is a screenshot from December 20th (image courtesy of rickyjames), around six months ago and just after the bitcoin bubble had burst. There would still be many more months of uncertainty ahead of us, but at that point bitcoin was trading at around $650 – roughly the same as it has been recently.

The second image is from CoinMarketCap in the last week. You’ll notice some major differences straight away. 

 Bitcoin: still the king

 

First of all, bitcoin hasn’t gone anywhere – in both senses. It’s still number one. In fact, no other cryptocurrency has come anywhere close to challenging it for the top spot. Today, Litecoin’s market cap is less that one 20th of bitcoin’s. At the same time, bitcoin’s value hasn’t changed much either. It’s probably not worth reading much into that at this point; bitcoin was hugely overvalued back in November and December given the state of its supporting ecosystem. The correction was both understandable and necessary.

The reality is that bitcoin enjoys an immense first-mover advantage and the network effect will likely keep it in its top spot for several years, if not forever. Every day brings greater popular and merchant adoption, and the more that happens the less reason there is for anyone else to do anything different.

Litecoin: silver slider 

Litecoin is still in at #2 with a hefty second-mover advantage, but it is steadily losing ground. (Note: Ripple did sit at #2 for a while, but doesn’t feature in this particular chart. More on Ripple later.) At one point at the height of the bubble Litecoin had a market cap of over $1 billion and one Litecoin was worth almost $50. Now, it’s sitting at around $10 with a market cap under $300 million (remember, rapidly-increasing supply also has an inevitable effect).

Litecoin has always been considered silver to bitcoin’s gold. That reputation is becoming tarnished as its relative market cap gradually slides. If you’d bought $100 of both btc and ltc at the peak of their bubbles, your bitcoin investment would still be worth over half of that. Litecoin, on the other hand, has depreciated by 80 percent.

The reason? Competition from a long and growing list of alts is part of the answer. More significantly, Litecoin doesn’t offer much in the way of long-term value. Its position at #2 is bolstered by an impressive network effect and good distribution. Its most attractive features back when it came to prominence were Scrypt mining (which was supposed to get around the problem of specialised ASIC miners making bitcoin mining increasingly elitist) and the fact that it represented a huge growth opportunity. Neither of those are true any more: Scrypt ASIC rigs have now been developed and are coming onto the market, with the result that Litecoin mining is going to become a lot more competitive (expensive) very soon. Litecoin’s egalitarian roots have been eroded. Worst of all, it offers nothing distinctive over other cryptocurrencies. Litecoin was the obvious place to invest if you thought bitcoin was a bad prospect back in 2013. That’s no longer the case.

BitScan alt coins

A similar dynamic has affected Peercoin, Namecoin and Quark (which has dropped out of the top 10 to a market cap of $4 million – a sixth of its value six months ago; others, like Feathercoin, have fared even worse since their peak).

Then there’s Dogecoin, once an apparently promising investment. A fun coin with a seemingly strong community, the Doge meme was its biggest attraction and drew lots of attention. Six months ago it wasn’t even a contender until a late bubble in February pumped it into the top 10. But now, Dogecoin is on the wane almost as fast. A market cap of over $80 million has reduced to just $30 million. Permanent inflation is built into the protocol, which doesn’t help. But it seems that a meme-based coin doesn’t offer enough to differentiate it from the other crypto competitors, recent advertising efforts notwithstanding. A little like Litecoin, Dogecoin has one or two interesting features but not enough to make it a solid prospect.

Killer features? 

So what are the factors to watch as the crypto charts continue to reshuffle? One clear trend that has emerged is anonymity. Darkcoin – another coin that was barely on the map until May, let alone six months ago – recently experienced a huge bubble. Whilst that was largely just down to speculators jumping on the next train and the hype turned to panic selling soon enough, it highlights the value that the crypto community places on privacy. Monero, another coin offering strong anonymity, has also been making waves recently, albeit some way down the market cap chart. Take a look on the last snapshot and you’ll also see NeutrinoCoin, which made a surprise entry after spiking 1,000 percent in a day. Anonymity is a core feature of this newcomer, too.

For fairly obvious reasons, it seems unlikely that any cryptocoin that offers anonymity will ever gain mainstream acceptance. Regulation has already slowed bitcoin’s adoption; try convincing the payment processing sector that they should use a protocol that hides every transaction from the prying eyes of the three-letter agencies.

NXTThe other newcomer that deserved mention is NXT. Positioned as a full platform for a digital economy rather than just a coin, NXT offers far more than simply the ability to send and receive money. It’s feature-rich and driven by not only a strong community and talented team of devs but a concerted marketing effort. Members of the NXT core team have been actively exploring relationships in the payments sector and networking hard in conferences. The list of coming features is unending. If there’s one killer feature that could seal its reputation, it could be the soon-to-be-unveiled Multigateway, which would allow near-instant, near-free, near-trustless decentralised crypto-trading. Get it right and sites like Cryptsy are out of business at a stroke. Maybe that’s why NXT’s value has tripled while most others have stagnated or fallen.

Finally, no overview would be complete without a mention of Ripple. Designed to connect different payment systems together, it took a similar-but-different approach to cryptocurrency with a more centralised approach. A proportion of all the 100 billion Ripples ever to be created were to be kept by Ripple Labs, with the rest sold or otherwise distributed. It appeared to have a bright future, even being used by a major bank, until a fall-out among the board resulted in an acrimonious parting and a mass sell-off of stock by CTO Jed McCaleb, crashing the price. Ripple was once second only to bitcoin (although its total value depends on how you measure its market cap, it was arguably more than $2 billion at the beginning of the year). Now, it is a mere $30 million.

There’s a cautionary tale there for any organisation, online or off, and that’s never been more the case than here in cryptoland. Bring a bunch of talented, motivated people together and you’re bound to have a clash of strong personalities and visions. When it goes well, the results can be unbelievable. But get your organisational relationships wrong and you’re in serious trouble.

Conclusion
Don't expect the crypto charts of fame to stay the same for long. It's a dog eat Doge world out there and any coin without strong fundamentals is destined to fail. Quite what will rise to the top isn't yet clear, but it looks as if anonymity and versatility are going to be critical. If you think we've missed a major trend (the relative merits of PoS vs PoW is a whole other debate, especially in the wake of the recent 51% threat to bitcoin), comment below and let us know what you think.

Brandon Hurst


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