Lessons from Bitcoin, Coinbase & Mt. Gox: Why being first may not mean much

Being the first to do something often counts for a lot. Whether it is Armstrong being the first to step on the moon or Karl Benz manufacturing the first automobile… public memory and perception usually fall back on the first movers. This is the case in the cryptocurrency market as well, an industry where entities such as exchanges are expected to be the first-movers because traditionally, being the first to do so is viewed as getting a headstart. However, is that really true?

Kraken’s Jesse Powell briefly opined on this subject in a recent podcast, claiming that crypto-exchanges that are the first to list new coins will enjoy a significant advantage. That is an interesting point to make, but is that the case?

Not quite an advantage?

Well, for starters, calling it a first-mover ‘advantage’ might be pushing it a bit because contrary to popular expectations, being the first has its own disadvantages as well.

Consider this – XYZ exchange is the first to launch a crypto-fiat trading pair in a market hitherto unexplored by the larger crypto-community. In this example, XYZ has a headstart, however, because it is the first to do so, it is also relatively unprepared for any roadblocks that might crop up. Relative, when compared to other exchanges that might follow suit and might have had the opportunity to learn from and capitalize on the mistakes made by the trailblazing company.

There are other disadvantages too, mostly including “additional costs and overhead related to unexplored markets.”

Do listings count for something?

Then there’s the question of whether listings really count as being the first-mover in a market. Remember pre-2018? That was a time when a flood of new market participants saw a rush of new cryptocurrencies and tokens, aided and abetted by the ICO boom. Crypto-exchanges at that time were listing cryptocurrencies left, right, and center, using criteria that weren’t as clear or as structured as they are today.

CoinJanitor’s Marc Kenigsberg opined on the same in a recent interview with AMBCrypto,

“I think the fact that a lot of coins were making money actually led to exchanges being lax on listing requirements. I think it’s a circle that ramped itself up and created this snowball.”

Now, consider this – How many of these newly-listed cryptocurrencies and tokens are in fashion today? Is there still a market for them? And most importantly, is there any value to them?

The answer is No. Most of these altcoins vanished as quickly as they emerged, joining the ranks of cryptos maximalists pejoratively call shitcoins. However, that’s not all that can be deduced here.

Exchange listings did no good in these cases, apart from giving a temporary, perhaps undeserved, credibility kick to the crypto in question. They didn’t do much for the exchanges either. Hence, Powell’s argument that crypto-exchanges listing new coins will enjoy the first-mover advantage is based on thin ice.

Heck, if being the first to list a cryptocurrency accounted for so much, small crypto-exchanges listing obscure trading pairs wouldn’t be so small, right?

A lesson in history

The history of the cryptocurrency market is replete with examples of first-mover advantages not turning out to be so. Consider the cases of Bitcoinmarket.com and Mt. Gox, two of the world’s first Bitcoin exchanges. While the first fell to fraudulent trades, the latter succumbed to a huge hack, both exchanges examples of the lack of foresight that accompanied the operations of the world’s first crypto-exchanges. This foresight came later when other competitors emerged.

The case of Coinbase makes for an interesting example too. Starting out as a Bitcoin wallet, when Coinbase launched in 2012, its founders were apparently worried that Coinbase was too late to the party. Simply put, Coinbase didn’t have the first-mover advantage. Fast forward to 2020 and you can see that Coinbase and Binance are two of the world’s biggest crypto-exchanges, both devoid of any so-called first-mover advantages.

Here, it is pertinent to point out another statement Powell made during the podcast. When asked about the future of crypto-exchanges, Powell said,

“I think you’ll see basically everyone kind of converging on a very similar feature set. And then maybe competition comes down to execution and the interface, maybe even just marketing and brand.”

For argument’s sake, for a moment let us assume that being the first-mover has disadvantages that are very negligible. If so, the homogeneity that Powell claims will permeate the exchange market in the future is bound to undermine any so-called advantages a first-mover may have. Being the first to list a cryptocurrency, ergo, won’t necessarily have the impact Powell thinks it will.

None of these points are meant to dissuade anyone from finding genuine cases where first-movers have enjoyed their advantage, however. In fact, the entirety of the industry today revolves around the original first-mover, Bitcoin. The world’s largest cryptocurrency, when introduced, was revolutionary, not only because of its ideas but because it was the first to do so too. Now, that’s a first-mover case study that perhaps trumps all else.