Bitcoin alternatives are closing the gap with the market leader after names like stellar and cardano became red hot as 2017 was closing.
The biggest cryptocurrency’s share of market value has fallen to a record 36 percent from 56 percent 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.
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 crypto market 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 last two months. Cardano is up more than 40-fold 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 was little changed on Wednesday and hasn’t gained for two successive days since touching a record high on Dec. 18.
The technical shortcomings of bitcoin signal its benchmark status may be taken away someday 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,” 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.”