Posted by Vijay Pathak | Last Updated: 11-Jan-17
2016 saw the rise of a number of alt coins with the likes of Zcash and Shadowcash competing head to head with bitcoin. And, zcash(rose to a whopping $5300 per coin) surprisingly even outperformed bitcoin at specific times in the market along with other relatively better performing altcoins such as navcoin and shadowcash. Besides, monero’s last year liquidity gave a serious hope to traders and bitcoin enthusiasts worldwide to believe that it could overtake bitcoin to be the closest on becoming an alternative to general money. But, at last, despite being highly volatile in the maiden week of the new year, it showed its prowess in the digital currency landscape by making an astounding comeback in the second week of 2017. Apparently, Bitcoin Application Development Services Industry took a sigh of relief this week with bitcoin price again surging up to approximately $1100.
Other Altcoins Catching Up with Bitcoin in the Context of Volatility and Liquidity
When we sit to decide the importance of a cryptocoin in the market, it becomes very vital to compare the liquidity and more importantly, the volatility of the said cryptocurrency. Further, these deciding factors also give us a sense of a digital currency’s potential to be adopted as a generalised payment currency in the near future. Besides, a coin to be used for general trade purposes requires for it possessing a low volatility and higher liquidity in the market as that's what makes it compelling for the end users to make them charge their digital wallets for the spending purposes. As high volatility leads towards taking risks in holding funds, and low liquidity would result in high merchant fee.
If we concentrate on the combined effect of volatility and liquidity taken together and its impact on the Commerce Index, we could see very clearly that in the recent past other altcoins too are catching up with Bitcoin. Besides, Decentralized Application Development Services has gained a huge traction in the recent past with bitcoin’s immense success under digital transactions landscape.
Let’s Compare the Liquidity and Volatility of the Most Relevant Cryptocoins Of Late
COMPARATIVE ANALYSIS OF THE LIQUIDITY OF PAYMENT COINS
Graph Credits : CoinDeskThe above graph shows the liquidity(weekly traded volume) of various payment coins
As the above plot shows very clearly that the new altcoins which had emerged in the market in the past few years have acquired a higher liquidity but higher volatility too at the same time making them less relevant to the traders and merchants worldwide in comparison to Bitcoin. As we could easily see in the graph that the liquidity of altcoins has been on a steep rise in 2016, especially in monero’s case which also suggests that if the trend continues it might match bitcoin in a year's time. Noteworthy is the fact that whenever a new cryptocurrency had been introduced in the market, its liquidity has skyrocketed during its initial phase of inception in the digital currency landscape. The same happened with bitcoin which garnered a steep liquidity in its first two years.
The most recent cryptocurrency launched, namely Zcash opened to a remarkably high liquidity with touching benchmarks to which monero and dash are living up to in the current times after two to three years of their release in the digital cryptocurrency market. And this proves the point that liquidity can be won very quickly.
Comparing the Volatility of Bitcoin with Other Popular Cryptocurrencies
As discussed earlier, maintaining low volatility is far more important than reaching a high Liquidity in order to achieve mass adoption. Consumers always make sure about the stability of a payment currency before charging their online wallets. On the contrary, rapid swings in the token prices as seen in the bitcoin’s early days would prompt for the avoidance of the involved cryptocurrency and hence would lead to the demotion of user adoption.Consumers need to be sure a payment currency is stable before charging their wallets.
Let’s Take a Look on Each Payment Coin’s Volatility Trend
#1. Bitcoin Volatility
Source : Coindesk
#2. Monero Volatility
Source : Coindesk
#3. Dash Volatility
Source : Coindesk
#4. Shadowcash Volatility
Source : Coindesk
Final Interpretation on the Basis of the Above Provided Graphs
While I started the blog thinking that Bitcoin is far ahead in the competition from the other altcoins but what I finally discovered is that I was only partly correct.
The exact findings say that the Bitcoin’s supremacy in the liquidity aspect is unquestionable but after analysing the above graphs and the recent trends, it looks like monero can catch it up within a year and dash and shadowcash could reach the same level in another 2 years from now. However the most relevant comparison would be to have a look on the on-chain transaction volume which is a difficult data to get our hands on. By the way, On-chain Transaction data can help in determining estimates of transaction values.
At present, the factors that are pulling bitcoin back in the competition includes some added payment features available with its rival cryptocurrencies like that of private payments option and faster confirmation times. Well, the availability of these features on bitcoin could be expected in the form of an update namely layer 2 protocol update in 2017.
And whenever this happens, the war among the digital currencies will be solely fought on the grounds of economic network effects, that is liquidity and volatility. Alongside, many Cryptocurrency payment service providers have emerged in the recent past in the wake of the increased use of cryptocurrencies worldwide with zcash and monero touching the coveted benchmarks recently.
Anyways, the final conclusion still very clearly cements the fact that Bitcoin is still an undisputed King among the existing cryptocurrencies and might continue to be the king in the near future too.