Cryptocurrencies have come a long way from where they started and likely still have a ways to go. Bitcoin, the clear front-runner in terms of market capitalization, has inspired the creation of hundreds of other cryptocurrencies. Since 2009, the market caps of successful cryptocurrencies have grown significantly, which tells us that the overall cryptocurrency market is booming. The purpose of this article is to develop a simple model to see how these market caps may evolve in the future.
Method:
In this article we look at the market caps of the current top 10 cryptocurrencies, which in some ways is like analyzing an index fund. The market caps of the selected cryptocurrencies were summed. The market cap historical data was split up into four time periods based on the dates of Bitcoin's three halving events (November 28 2012, July 09 2016, and May 05 2020). Within each of the four time periods, the market cap growth was calculated (relative to the market cap value at the start of each time period). The results are shown in the figures below.
Extracting the maximum market cap growth within each time period and linearly fitting the data (after taking the base 10 logarithmic) yields a simple market cap growth model.
Results:
Figure 1 - Market cap growth of the top 10 cryptocurrencies before Bitcoin's first halving event:
Figure 2 - Market cap growth of the top 10 cryptocurrencies after Bitcoin's first halving event:
Figure 3 - Market cap growth of the top 10 cryptocurrencies after Bitcoin's second halving event:
Figure 4 - Market cap growth of the top 10 cryptocurrencies after Bitcoin's third halving event:
Figure 5 - Maximum market cap growth model:
Based on the analyzed data, the ends of the two linear fits indicate the growth that the top 10 crypto market cap could experience in the current halving cycle. The blue dots in Figure 5 show the maximum market cap growth values from the data, the orange dashed line (labeled "fit 1") shows the linear fit including only data from the first three bitcoin halving events, and the green dashed line (labeled "fit 2") shows the linear fit that you get using all of the data (including the current bitcoin halving cycle). Since it is unknown whether or not the market cap has already peaked this cycle, it is fair to assume that both linear models are equally valid (note that past performance is no guarantee of future results).
Either way, both linear fits indicate that there may still be room for market cap growth this halving cycle. The data indicates that the market caps of the top 10 cryptocurrencies have grown by 570% since the start of this halving cycle. The two models indicate that the market cap may continue to grow to between 737% and 1346% (so potentially between 29% and 136% from now).
Conclusion:
The market cap growth of the current top 10 cryptocurrencies is slowing down. Each cycle growth is reduced as the market becomes more established and more money flows in. While it is becoming more and more unlikely to achieve astronomical returns (like in the early days), it is possible that a simple long-term holding strategy would prove beneficial (assuming that you invest/gamble with the right cryptos).
Disclaimer: This post should not be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.
