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Competition in the Cryptocurrency Market

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  • Neil Gandal
  • Hanna Halaburda

Abstract

We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies. Specifically, we look at two aspects: (1) competition among different currencies, and (2) competition among exchanges where those currencies are traded. Our data suggest that the winner-take-all effect is dominant early in the market. During this period, when Bitcoin becomes more valuable against the U.S. dollar, it also becomes more valuable against other cryptocurrencies. This trend is reversed in the later period. The data in the later period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with “winner-take-all” dynamics.

Suggested Citation

  • Neil Gandal & Hanna Halaburda, 2014. "Competition in the Cryptocurrency Market," CESifo Working Paper Series 4980, CESifo.
    • Handle: RePEc:ces:ceswps:_4980
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    as
    1. Joshua S. Gans & Hanna Halaburda, 2015. "Some Economics of Private Digital Currency," NBER Chapters, in: Economic Analysis of the Digital Economy, pages 257-276, National Bureau of Economic Research, Inc.
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    6. Dwyer, Gerald P, 2014. "The Economics of Private Digital Currency," MPRA Paper 55824, University Library of Munich, Germany.
    7. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    8. Ben Fung & Hanna Halaburda, 2014. "Understanding Platform-Based Digital Currencies," Bank of Canada Review, Bank of Canada, vol. 2014(Spring), pages 12-20.
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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