The Evolution of the Digital Asset Market in 2017

This article presents a comprehensive overview of the developments in the digital asset market in 2017. We analysed daily market data from Jan 2017 to Jan 2018 to identify and quantify trends — many of which may come as a surprise.

Trading Volumes Mostly Unaffected by Price Changes

Surprisingly, despite an unparalleled appreciation in prices, trading volumes (measured in the reference digital asset) have remained relatively constant throughout the year for many digital assets.

Bitcoin trading volumes show a slightly increasing trend with about ₿ 40K a day in the beginning of 2017 to about ₿ 60K towards the end of 2017. Ether trading volumes peaked around July with about Ξ 500K a day and have fallen back to Ξ 200K a day towards the end of 2017. Ripples trading volumes followed are more expected pattern with huge increases in volume in April 2017, where it jumped 400%, and another increase in volume in December 2017 when it jumped 1000%. Litecoin’s trading volume peaked in March with two more jumps in volume in early September and early December, when its price reached new record highs. For brevity, we do not comment on the figures obtained for EOS, NEO, IOTA, ZEC and ETC.

One possible interpretation of these figures is that traders mostly position their trades in terms of the number of digital assets traded rather than their value in fiat currencies.

Altcoins on the Rise and Asia’s Market Dominance is Contested

Two big trends in 2017 were the rise of altcoin trading and a decreasing market dominance of East Asia. At the beginning of 2017, Bitcoin dominated the global market by a large margin with East Asia accounting for 75% of it. While altcoin trading rose in popularity throughout the world, the only region where bitcoin lost its pole position (from Mar-Aug 2017) to an altcoin (ETH) was North America. Surprisingly, in relation to Bitcoin, Bitcoin cash was most popular in Western Europe — and not in East Asia.

In June 2017, the size of the North American and East Asian markets was almost levelled and Europe was far behind. This resulted in a market dominance of less than 50% for East Asia. From then on, the European and Asian markets outpaced the growth of the American market leading to Europe overtaking America. Even though at the end of 2017, East Asia still dominates the market, its dominance is smaller than a year ago at about 50–60%.

The rise of Europe and the (relative falls) of East Asia and North America are most likely due to tightening regulations in China, Korea and North America and a more progressive tone in Europe.

Japan Remains True to Bitcoin While Korea Experiments

The Japanese love Bitcoin, the Americans Ripple and the Koreans love everything.

This or a similar sentence could be considered common folklore when it comes to the local preferences in digital assets markets. But can it stand a test?

To find out, we visualized the trading volumes of the ten most traded digital assets with respect to individual currencies (including BTC, ETH and USDT).

The American dollar (USD) has been the most popular currency to buy into the digital asset market. Despite being issued by the United States many exchanges use USD as a reference currency resulting in a higher BTC/USD trading volume than that of North America alone. Generally, USD (and EUR) trading volumes are in line with the entire market, with Bitcoin being the most popular asset and Ether coming in second. The remaining eight digital assets play a minor role. But is American-made Ripple particularly popular? The answer is a clear no. As always, the Americans prefer something primarily made in China — Bitcoin.

The same preference but taken to an extreme can be seen when looking at Japan, where Bitcoin absolutely dominates the market. All other trading pairs play an insignificant role. So indeed, the Japanese stay true to their (at least by name) Japanese founder of Bitcoin Satoshi Nakamoto.

On the complete opposite side of the spectrum is Korea, where in 8 out of 13 months, Bitcoin was not the most traded digital asset — making Koreans the most curios and most diversified buyers around the world. Unlike the Americans, Koreans seem to have found a liking in Ripple making it the most traded digital asset in Jan 2018.

When looking at the digital reference currencies Bitcoin and Ether, the patterns are overall very similar to USD. A bit of an odd case is the (supposedly) dollar backed currency Tether (USDT) which only recently became a popular medium for trading other digital assets.

Trading Volumes More Volatile Than Market Caps

Even though, on a large scale, trading volumes and market caps follow similar patterns, trading volumes are significantly more volatile.

Evolution of trading volumes for the 50 most traded digital assets and evolution of market cap for the 50 digital assets with highest market cap. Lists are ordered by trading volume and market caps, respectively. Toggling individual digital assets (e.g. BTC or ETH) excludes them from the comparison.

While Bitcoin and Ether trading volumes move relatively consistently with their market caps, things are different in the following three ranks consisting of Litecoin (LTC), Bitcoin Cash (BCH) and Ripple (XRP). Whereas, XRP’s trading volumes are consistently below their market cap share, LTC’s trading volumes consistently exceed their market cap share. Bitcoin Cash on the other hand, is riding a roller coaster switching from one extreme to the other. Overall these effects seem to cancel each other.

Going further down the ranks, the discrepancy between volumes and market caps seems to widen. Whereas the market cap evolution is relatively steady, some digital assets such as Stellar (XLM), Neo (NEO), EOS and most notably Tron (TRX) had some massive temporary jumps (‘pump and dumps’) in trading volumes. By measuring the relative size of the coincidence set between the Top N by trading volume and the Top N by market cap we can make this discrepancy quantitative.

Relative coincidence between Top N by trading volume and Top N by market cap. For example, for N=5, the Top 5 by trading volume are BTC, ETH, XRP, LTC and BCH; whereas the Top 5 by market cap are BTC, ETH, XRP, BCH and ADA, giving a coincidence set of size four and thus a coincidence score of 4/5=80%.

Conclusions

2017 has been an exciting year for digital assets with an unparalleled growth in trading volume, market cap and the number of tradable digital assets. With the surge in prices, its presence in the public rose from coverage in specialized blogs all the way to mainstream media.

Some of the key findings from our analysis are:

  • Bitcoin continues to dominate the market but the margin is shrinking. In South Korea, altcoin trading volumes have already overtaken bitcoin’s. Japan continues to (almost) exclusively trade bitcoin.
  • The number of Bitcoin and Ether traded per week remained relatively constant throughout the year and seem largely uncorrelated to their price development. Some altcoins show a high correlation between price and volume for short time intervals (‘pumps’) but not over larger time intervals.
  • Asia’s market dominance continues to decrease. North American markets grew faster than the global market until June — almost levelling with Asia- but then fell behind. Recently, Western Europe has become the second largest market.
  • The relative trading volumes of bitcoin and ether are mostly in line with their relative market caps. Ripple’s (XRP) trading volume share is consistently below their market cap share and the opposite holds true for Litecoin (LTC). For smaller altcoins, the discrepancy between trading volume and market cap share increases.

*Data Acquisition and Data Analysis

All data has been obtained from cryptocompare, saved as an sqlite database, queried with pandas and visualized with infogram. All charts are interactive and can be customized by (un-)selecting items. When hovering over data points additional information is displayed. Selecting different tabs or running the play button shows different datasets.


Disclaimer: Nothing contained in this article constitutes investment, accounting, tax or legal advice or a recommendation to buy, or sell any (alt-)coin or other investment, management product or service or pursue any investment strategy. You should not buy any (alt-) coin unless you are prepared to sustain a total loss of the money you have invested plus any commission or other transaction charges. Moreover, past performance is not indicative of future results.



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