Bitcoin Is Sucking All the Oxygen

(Bloomberg Gadfly) -- With all this love for bitcoin, spare a thought for the little guy.

Despite a plethora of new coins coming online in the past year, and the emergence of ethereum as an alternative cryptocurrency, bitcoin is still sucking up most of the oxygen.

Without a doubt, the new coins' sponsors owe a debt of gratitude to bitcoin for blazing a trail. But you'd think some of them might enjoy more of the spotlight.

Take ethereum. Despite a widespread belief that it's more versatile than bitcoin because of a technical ability to support other uses such as smart contracts, its coin (called ether) has been slower to take off. Sure, growth has been phenomenal, including a 55-fold increase over the past 12 months, but not quite at the long-term rate enjoyed by bitcoin.

By tracking the number of days it took for both currencies to double

There are many reasons why this may be the case, including a rash of new coins, many based on ethereum, that diverted funds elsewhere. Detractors also point to a previous incident that led to the cryptocurrency being forked.

Yet people who looked beyond bitcoin would have been rewarded by returns many multiples of that offered by the leader over the past year.

And while many punters have tried to ride the wave of smaller coins, sticking to the top 10 would have been a solid strategy, returning around 64 times the initial investment from a year ago. Admittedly there's a certain amount of selection bias here, but most of the top 10 coins today were also leading players in December 2016. The point is that selecting a broad basket of smaller coins wouldn't have been a better guarantee of bigger returns than simply choosing a selection of top 10 names -- as long as bitcoin wasn't among them.

Despite this, bitcoin's early-mover advantage, continued fame, and single-purpose use (as a store of value) still make it an oversized influence on the global crypto market, in a way that suggests it's already playing the role of reserve currency among peers. This may also be because most exchanges offer some kind of bitcoin pairing, and many only allow trades into and out of fiat currencies via bitcoin. The same can't be said for other coins.

It's still the Wild West in Coinlandia, and there's no sense that bitcoin is going to go away anytime soon. But we're yet to see what role all those alternative currencies will play in a broader market.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

1. To eliminate spikes and track sustained price levels, I examined five-day moving averages for both.

To contact the author of this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.

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