Gandal & Halaburda paper: Competition in the Crypto-Currency Market

Over the past several months, there have been a near infinite amount of conversations about the continual existence of altcoins — especially as it relates to prices (i.e., rising tide lifts all boats).  Some new preliminary research from Neil Gandal and Hanna Halaburda suggest that cryptocurrencies are not a winner-take-all scenario.  It should be noted that their time scale and usage of a select few exchanges may not be adequate for generalizations yet but some food for thought.

(Paper) (Slides)


We analyze how network effects affect competition in the nascent crypto-currency market. We do so by examining the changes over time in exchange rate data among crypto-currencies. Speci fically, we look at two aspects: (1) competition among different currencies, and (2) competition among exchanges where those currencies are traded. We fou nd that early in the market as Bitcoin becomes more valuable (against the USD), other crypto-currencies become less valuable against Bitcoin. This trend is reversed in the later period. Some of the other crypto-currencies lost most or all of their value. On the other hand, the values of some of the successful currencies increased in price against the USD, and at the faster rate than Bitcoin. The data in the latter period are consistent with the use of crypto-currencies as financial assets (popularized by Bitcoin), and not consistent with \winner-take-all” dynamics. For exchanges, we found little if any evidence of arbitrage opportunities. With no arbitrage opportunities, it is possible for multiple exchanges to coexist in equilibrium despite two-sided network effects.

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