A new research study on the cryptocurrency market has been released by the Royal Society Open Science, a peer-reviewed open-access scientific journal published by The Royal Society. Four leading academics in “Evolutionary Dynamics of the Cryptocurrency Market” employ a scientifically sound analysis of the entire cryptomarket through studying 1,469 cryptocurrencies between April 2013 and May 2017.
The research study done by the academics focuses on “fundamentals”, often regarded as speculative. The authors claim that their results “shed light on the properties of the cryptocurrency market and establish a first formal link between ecological modelling and the study of this growing system.”
They also give some notable examples of relatively unchanging statistics. These include the number of active cryptocurrencies, the turnover of cryptocurrencies, and market share distribution. The team which adopted an ecological perspective was able to reproduce empirical data which is matching biological evolution’s neutral model to cryptomarket activity. They have also established an academic bridge between cryptocurrency models and ecology. The neutral theory states, variations between species are dictated by genetic mutations that don’t affect an organism’s survival or reproduction – not by natural selection.
Co-author of the study and a lecturer at the University College London’s Centre for Blockchain Technologies explains how the team pursued the novel approach to studying cryptocurrency markets:
“We were struck by the diversity of approaches explored by the existing literature. Some of the few articles published before we started treated cryptocurrencies as assets, others as technological innovations, and others as currencies. However, the metaphor of a cryptocurrency ‘ecology’ was very frequent, also, in the media. We took it seriously and selected one of the simplest models for evolution to start our investigation.”
Even though wild volatility is still inherently part of cryptocurrency markets, this new ecological study claims that many statistical properties within the cryptocurrency market have been stable for years. Detailing why the neutral model was appropriate for the analysis, the report states:
“The neutral model translates in the simplest way three main assumptions: (i) interactions between cryptocurrencies are equivalent on an individual per capita basis (i.e. per US dollar), (ii) the process is stochastic, and (iii) it is a sampling theory, where the new generation is the basis to build the following one. In other words, the neutral model assumes that all species/cryptocurrencies are equivalent and that all individuals/US dollars are equivalent.”
However, this analogy still isn’t perfect. As the team put it, “The model is simple and does not capture the full complexity of the cryptocurrency ecology. However, the good match with at least part of the picture emerging from the data does suggest that some of the long-term properties of the cryptocurrency market can be accounted for based on simple hypotheses.”