Bitcoin's Forks Have Trounced Bitcoin This Year

Bitcoin has underperformed its three major fork currencies by as much as triple-digit percentage points so far this year.

AccessTimeIconJun 8, 2020 at 6:03 p.m. UTC
Updated Sep 14, 2021 at 8:49 a.m. UTC
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While bitcoin has outperformed gold and the S&P 500 index in 2020, data shows even better returns among leading bitcoin "fork" cryptocurrencies.

These cryptocurrencies are created by copying the Bitcoin source code repository through a process called “forking.” Developers then adjust certain parameters and features in the copied code to create a similar but distinct protocol. According to data from Messari, the three largest bitcoin (BTC) forks by market capitalization are bitcoin cash (BCH), bitcoin sv (BSV), and bitcoin gold (BTG). 

Using an equal-weighted index of the four cryptocurrencies the returns are almost 3.5 times greater than bitcoin alone for the year to date, based on TradingView data. Since the beginning of 2019, moreover, this index outperformed bitcoin by a total of 435 percentage points. An equal-weighted index of just the top three bitcoin forks returned gains 3.1 times greater than bitcoin, year to date.

Equal-weighted index of bitcoin, bitcoin cash, bitcoin sv and bitcoin gold compared to bitcoin
Equal-weighted index of bitcoin, bitcoin cash, bitcoin sv and bitcoin gold compared to bitcoin

Individually, bitcoin sv and bitcoin gold have outperformed bitcoin by 61 and 37 percentage points, respectively, since the start of 2020. Bitcoin cash outperformed bitcoin until May. Year to date, the largest bitcoin fork has underperformed bitcoin by 11 percentage points, according to TradingView data. 

Individual returns for bitcoin and the top three bitcoin forks
Individual returns for bitcoin and the top three bitcoin forks

Some analysts aren’t surprised by these returns. Cryptocurrencies with low and middle market capitalizations like these bitcoin forks “tend to outperform bitcoin during marketwide bull runs,” said Aditya Das, market analyst at research firm Brave New Coin. Similar trends were observed during the 2017 bullish market cycle, he explained. The miner subsidy for bitcoin and its forks also halved this year, an event that occurs once every four years and is a bullish catalyst for some investors.

These returns are mostly attributable to a strong positive correlation with bitcoin’s price inflation combined with higher volatility, according to Louis Liu, founder and CIO at Mimesis Capital. Nonetheless, there is “definitely alpha” in bitcoin forks, he said, referring to the excess returns. However, he says they were not the result of fundamental value added by improving on bitcoin.  

As is usually the case, greater returns come with increased risk. Liquidity is one such concern, Das explained. 

Only two of the industry’s largest exchanges by traded volume, Binance and Bitfinex, support markets for all three top bitcoin forks, according to Nomics. Moreover, the largest bitcoin cash spot market, supported by Binance, is only one-tenth the size of the largest bitcoin market, also on Binance. 

Forks such as bitcoin cash and bitcoin sv are “likely being used purely as speculative instruments,” said Kevin Kelly, former equity analyst at Bloomberg and co-founder of digital asset research firm Delphi Digital.

What’s more, he added, “the liquidity profile and long-term value proposition” of bitcoin forks is “drastically different, if even existent, when compared to bitcoin.” 

UPDATE (June 9, 2020 14:46 UTC): This piece has been updated to reflect the returns of an equal-weighted index of bitcoin and its top three forks as 3.5 times greater than bitcoin returns, not 14 times greater as originally stated. Also added are returns of an equal-weighted index comprised of only the top three forks.

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