Since the ICO boom at the end of 2017, the digital asset space has matured into a thriving ecosystem comprising thousands of community members, traders, and organizations. In December 2017 alone, ICOs raised over $1.5 billion and January 2018 wasn’t far behind. According to Coindesk’s tracker, cumulative ICO funding is now close to $25 billion, and consequently, there is an incredible amount of activity in the space.
Despite all these positive developments, the total Market Capitalization for cryptocurrencies in April 2020, is actually lower than it was before the boom.
This is surprising given all the talent, innovation and utility which has entered the space since then. Intuitively, most people would assume that the total value of the digital asset ecosystem would increase as its size and utility increases - but this is not the case.
Clearly, we need to ask questions about whether Market Capitalization is a useful metric by which to measure success, but more on that later.
Interestingly, “activity” in the cryptocurrency space, by which we mean the amount of developer time spent on individual projects, is now a little easier to measure than before. Cryptomiso provides a history of 246 cryptocurrencies based on their most popular GitHub repo.
This data shows us how many “commits” token repos have, giving a perfunctory insight into how active the developers are, ergo how active the token project is. Using this data we can then see if Market Capitalization reflects or is even impacted by the amount of developer activity for each project.
The first thing to clarify is the concept of Market Capitalization. At its core, the Market Capitalization of a digital asset is simply the price of the token multiplied by the amount of tokens in circulation.
In Bitcoin’s case, there are currently 18,347,812 BTC in circulation. With a per token price of $7,721.56, the total Market Cap comes out at $141,673,731,227 (or roughly $141.6 billion) - more than IBM, the Bank of Canada and SAP.
Stocks and bonds are evaluated based on a number of metrics, like price-to-earnings ratio, earnings growth, and earnings per share. Financial statements are another way of learning how well a company is performing. In the case of crypto, however, none of these metrics apply, and financial statements are typically not issued. This makes Market Capitalization one of the few verifiable metrics that we can track to measure the strength of a crypto asset.
But as we mentioned in the introduction, Market Cap does not reflect the value of a digital asset and its organization on its own. Compared to stocks, many cryptocurrencies have much smaller market sizes. This means that even small movements can have a significant impact on the price of the token, sharply skewing the Market Cap one way or the other.
With this in mind, it’s clear that Market Cap is not a perfect reflection of the value of an ecosystem, but it’s one of the few verifiable metrics we have available.
GitHub is the world’s most popular code hosting platform, boasting over 40 million users and more than 100 million repositories. Developers use GitHub repositories to work collaboratively on projects from anywhere.
On GitHub, a saved change to a repository is called a “commit”. Therefore, repositories with the most “commits” can be deemed the most active, because they’ve been changed the most. Using data from CryptoMiso we can see which token projects have been the most active.
Unfortunately, there are some caveats. Not every crypto company uses GitHub. Additionally, CryptoMiso only tracks the most active repository, meaning that activity in other repos is not included.
Nevertheless, it’s fair to conclude that token projects with a large number of commits on their primary repositories have allocated more developer time than projects with few or no commits.
Now that we’ve explained the concepts of Market Capitalization and GitHub commits, it’s time to discover if the two are in some way related. Intuitively, it makes sense to assume that token projects with more GitHub commits, push out more features, fix more bugs and add more value to their ecosystem.
We’ll be comparing data from the last 12 months. Let’s see if this holds up.
According to CryptoMiso, the most active GitHub repo among token projects belongs to Aelf - the decentralized cloud computing blockchain network. With over 5,290 commits coming from just 35 contributors, Aelf manages to rank first despite having a relatively few developers contributing to the project.
Looking at the data from CoinMarketCap, we can see two significant spikes, one coming between May and August, and another coming in February/March.
Interestingly, the spikes in Market Cap seem to overlap with increased developer activity - which shows significant increases in May of 2019 and February/March 2020.
Looking at Aelf’s blog it becomes clear that the decentralized computing platform had a strong start to 2020, releasing Aelf Enterprise V0.9.2 on the 7th of February, and announcing their Economic & Governance Model on the 24th.
Looking at the data from CMC, we can see that Aelf’s Market Cap started increasing on the 4th of February and peaked on the 15th. According to CryptoMiso, the week leading up to the 15th was one of Aelf’s busiest, with 170 commits. At first glance this seems to confirm a correlation between the number of commits and Market Capitalization.
On the 24th of May 2019, the date of the first spike, Aelf announced that Amazon Web Services now supported Aelf Enterprise, likely causing the sharp rise. Nevertheless, the week prior had been a very active one for the Aelf development team, registering 177 commits according to data from CryptoMiso.
What we can see, therefore, is that Aelf’s Market Cap seems to correlate, at least superficially, with increased developer activity.
The second most active token project on our list is Lisk - the open source blockchain application platform from Germany.
Looking at the data from CoinMarketCap, we can see that Lisk’s Market Cap spiked between the 16th of May and 26th of June 2019, as well as on the 10th of February 2020.
In CryptoMiso, we can see that May 2019 was indeed a very active time for the development team. From the 12th to the 19th of May, Lisk registered 192 commits.
Interestingly, the spike that occurred on the 10th of February, marking Lisk’s largest ever Market Cap, does not seem to correlate with an increase in developer activity. From January 26th to February 2nd there were 151 commits to the main GitHub repository. From the 2nd to the 9th there were only 56, and only 9 commits between the 9th and the 16th.
What could be happening here of course, is that developer activity was focused on a different GitHub Repo. Scanning Lisk’s blog and social media, it becomes clear that Lisk launched their Betanet 3.0.0 on the 13th of February. Given the speculative nature of digital assets, the anticipation of this release may well have been the cause for the spike in Market Cap.
Chainlink has the third most active GitHub repository, registering over 4,000 commits from 44 contributors in just 12 months.
With the aim of connecting smart contracts to real world data, Chainlink is the first entry in our list that has seen year on year growth in its Market Cap.
Looking more closely at the data we can see two significant spikes. The first occurred on the 30th of June 2019. The second between the 19th of February and the 4th of March.
Heading over to CryptoMiso, we can see that the first spike in Market Capitalization does not correspond with an increase in developer activity. In fact, June was a quiet month for Chainlink’s most active GitHub Repo. The week leading up to the spike on the 30th of June, only saw 24 commits, and the same again the week prior.
One explanation for the first spike in Market Cap may be that Coinbase announced the listing of the LINK token on the 26th of June. The “Coinbase Effect” is well documented, and typically results in a strong Market Cap increase.
Moving onto the second spike in Market Cap, we can see that there does seem to be an overlap with increased developer activity. According to CryptoMiso, the week leading into February was one of Chainlink’s most active, recording 186 commits from the 26th of January to the 2nd of February.
There does not seem to have been a significant release in that time however, and the spike is likely attributable to Ethereum Classic and the defi exchange bZx integrating the Chainlink Oracle protocol.
Any conclusion of this hypothesis has to address (again) some of the flaws in our approach. Even if overlaps in developer activity and Market Cap exist, this does not point towards a causal relationship. If we can identify meaningful correlations however, this could help us understand how the two are related.
In this article (so far) we’ve looked at the top three most active GitHub repos in the cryptocurrency space and tried to find out if the developer activity impacts their Market Cap. In the coming months, we will add further token projects and analyse the data to see if a relationship exists.
As it stands, the six significant increases in Market Cap discussed here show the following:
For now, it seems clear that more analysis needs to be done. Interestingly, two of the three projects saw a year on year decline in Market Cap despite having above average developer activity.
Increases in Market Capitalization often seem to be driven by partnerships (“Coinbase Effect”) rather than releases, but the gains consequently disappear quite rapidly. Furthermore, commits are not necessarily a measure for innovation or utility. Bug fixes for example may require more fixes than new features.
With that in mind, the final word on this has not been spoken. We will keep analyzing token projects until a clear conclusion can be met.