Discussion Paper Details

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Title: Competition in the Cryptocurrency Market

Author(s): Neil Gandal and Hanna Halaburda

Publication Date: September 2014

Keyword(s): Bitcoin, cryptocurrency and network effects

Programme Area(s): Industrial Organization

Abstract: We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining the changes over time in exchange rate data among cryptocurrencies. Specifically, we look at two aspects: (1) competition among different currencies, and (2) competition among exchanges where those currencies are traded. Our data suggest that the winner-take-all effect is dominant early in the market. During this period, when Bitcoin becomes more valuable against the U.S. dollar, it also becomes more valuable against other cryptocurrencies. This trend is reversed in the later period. The data in the later period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with "winner-take-all" dynamics.

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Bibliographic Reference

Gandal, N and Halaburda, H. 2014. 'Competition in the Cryptocurrency Market'. London, Centre for Economic Policy Research.