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The network effects of volatility and liquidity, Bitcoin vs other payment coins


The Volatility of 600 cryptocurrencies
Alt-coin volatility proportional to bubble size

2016 has been a bull year for privacy coins. Earlier this year we saw mooning of Monero which saw subsequent pumps in other dark-coins including ShadowCash and Navcoin. Then we witnessed a mega-hyped launch of ZCash which peaked at an astounding $5.3k per coin.

All of these coins are Payment Coins competing in the battle win the war to be General Money. Let me explain. While most alt-coins tend to be forging into market specific app-coin territory, what makes payment coins unique is the shear size of the potential win, while app-coins can capture a market segment which effectively puts a cap on their valuation, payment coins being a kind of generalised money can capture “M2 money supply” as a ceiling, i.e. trillions.

When I look at payment coins I see very strong economic network effects are in play. I covered earlier with my Commerce Index that liquidity and low volatility are very important for a coin to be useful for general trade. Both of these qualities are crucial to make it compelling for end consumers to charge their wallet with a payment token to spend. With high volatility there’s too much risk holding funds and with insufficient liquidity wallet recharge and merchant fees will be high.

When looking at the combined qualities of liquidity and price stability together as a Commerce Index, we could see other coins catching up with Bitcoin. In this study I will be doing a deeper dive into these two qualities individually.

For the sake of this study, I will be looking at the leading coins by market cap, namely Bitcoin, Monero, Dash, ZCash and ShadowCash. All of these coins are well above $5m market cap, NavCoin and others at less than $3m have been excluded.

Continue reading The network effects of volatility and liquidity, Bitcoin vs other payment coins

I have a lot of brain-farts on crypto-currency. For more farting, follow me on Twitter @dangermouse117

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