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 , the three largest bitcoin () forks by market capitalization are bitcoin cash (), bitcoin sv (), and bitcoin gold ().
Using an equal-weighted index of the four cryptocurrencies the returns are almost 14 times greater than bitcoin alone for the year to date, based on data. Since the beginning of 2019, this index outperformed bitcoin by 435 percentage points.
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. For the year to date, the largest bitcoin fork has underperformed bitcoin by 11 percentage points, according to TradingView data.
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.