Crypto Quant Insight : Beyond Bitcoin and Ethereum

A study on trading cryptocurrencies from Marco, Head of Quantitative Strategies at SwissBorg

Most people have some idea about Bitcoin, have heard of Ethereum and have a blurry picture of other cryptocurrencies. And who can blame them? BTC and ETH still represent over 70% of the market value of Cryptos and therefore get most of the media attention. In this post we will focus our analysis on the rest of the market to get a better understanding of the whole ecosystem. Over time, we expect to see more Cryptos gain importance while the whole pie keeps growing.

HOW MANY CRYPTOCURRENCIES ARE OUT THERE?

A lot… the chart below shows total number of Cryptos (Assets + Currencies) over time. As of the 6th of September 2017, there are 1,104 tradeable Cryptos according to Coinmarketcap.com (A website that tracks most of the exchanges)

Actually, there are even more as some recent ICO’s are not listed on exchanges, and therefore are not tracked yet. One observation that comes to mind by looking at this chart is that while ICO’s have received a lot of press attention in 2017, the number of outstanding cryptos has been steadily growing since 2014.

It’s important to note that back in 2014, most of the cryptos were not pre-mined like today. Most of the coins started with very limited amounts outstanding and were using a “Bitcoin Model” relying on mining to generate supply. Today, most of the new cryptos being issued follow the ICO model, where a sizeable supply is issued at launch.

OUT OF ALL THESE COINS, HOW MANY ARE ACTUALLY TRADEABLE ?

Let’s apply liquidity filters to our crypto universe to see what happens. We will use the average daily volume over the last 30 days as our liquidity metric. The chart below shows the total number of cryptos over time after we apply our liquidity metric based on various US Dollar amounts:

The market is still highly concentrated but the good news is the level of liquidity is steadily increasing across the spectrum.

If we then look at the market capitalization distribution by currency, BTC and ETH still dominate over 70% of the total market. The chart below shows the distribution over time of the market capitalization of the whole Crypto market. Bitcoin is no longer the only game in town!

And this is the average 30 day volume distribution of the same currencies over the same period, which shows a similar picture.

As this article is actually about Cryptos Beyond Bitcoin and Ethereum, here are the same two charts excluding the two big belugas.

And the Volume:

We should keep in mind that Liquidity management becomes more and more important as your capital grows. However, for modest amounts this not an important factor. The advantage of a small investor in this market is huge as many opportunities are not liquid enough for large players.

Let’s have a look at returns too, while bitcoin has had a massive price appreciation, numerous coins have had much higher returns, in recent years. Note the in recent years, our analysis data only goes back to 2013. At the beginning of our dataset, bitcoin was already worth 1.5 billion dollars, so it is relatively easier for Cryptos with smaller market capitalizations to have massive price appreciations.

Here are the top coins by return since inception or the start of our dataset, but before you start fantasising about how much money you could have made if you only put some money in them, have a look at the drawdowns and volatility that would have come with it.

Also, note that some are so thinly traded that even to buy a small amount could have taken days. In addition, the comparison is not perfect because some coins start at different dates as they did not exist before, but still, just for fun, let’s have a look.

While these numbers are mind boggling, keep in mind that most likely, only the initiators or people very close to them bought at those prices. We have also included the link below to a more “realistic” list which contains liquidity filters (Average Daily liquidity >$10,000 at inception)

For a reference, in this list, Bitcoin and Ethereum are in positions 133 and 65 of 1,095.

Here are also the worst of the worst.

Well, I guess since they can’t go to zero there is still hope…

For the full and liquidity filtered list, please click here

Here are some other interesting stats on these 1,095 Cryptos:

• 69 or 6.3% have accumulated a return of over 10,000 %
  (including the aptly named happycoin)
• 253 or 23.1 % have accumulated a return of over 1,000 %
• 643 or 58.7 % have a positive return while 449 or 41.0 % are below their starting price and the rest are flat
• 311 or 28.4 % have lost over 50%, with an average loss of -83%
• 126 Coins or 11.5 % have lost over 90% since Inception or the data starting point

We hope you found this interesting, please send us any feedback, comments or questions below.

For a more detailed analysis, read the second part of this article here.

Notes:

Price & Volume Data Source: Coinmarketcap.com

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