The rise and fall of cryptocurrency coins and tokens

Abstract

Since Bitcoin’s introduction in 2009, interest in cryptocurrencies has soared. One manifestation of this interest has been the explosion of newly created coins and tokens. In this paper, we analyze the dynamics of this burgeoning industry. We consider both cryptocurrency coins and tokens. The paper examines the dynamics of coin and token creation, competition and destruction in the cryptocurrency industry. In order to conduct the analysis, we develop a methodology to identify peaks in prices and trade volume, as well as when coins and tokens are abandoned and subsequently “resurrected”. We also study trading activity. Our data spans more than 4 years: there are 1082 coins and 725 tokens in the data. While there are some similarities between coins and tokens regarding dynamics, there are some striking differences as well. Overall, we find that 44% of publicly-traded coins are abandoned, at least temporarily. 71% of abandoned coins are later resurrected, leaving 18% of coins to fail permanently. Tokens experience abandonment less frequently, with only 7% abandonment and 5% permanent token abandonment at the end of the data. Using linear regressions, we find that market variables such as the bitcoin price are not associated with the rate of introducing new coins, though they are positively associated with issuing new tokens. We find that for both coins and tokens, market variables are positively associated with resurrection. We then examine the effect that the bursting of the Bitcoin bubble in December 2017 had on the dynamics in the industry. Unlike the end of the 2013 bubble, some alternative cryptocurrencies continue to flourish after the bursting of this bubble.