What is the First-Mover Advantage (FMA)?
Being an early entrant into a new market allows a project to establish brand recognition, customer loyalty, and market share before others arrive, although it must continue to adapt as the market develops to avoid being overtaken by competitors.
The concept has been observed in many industries prior to crypto, where businesses have become dominant in a new market, offering a product or service that was previously not available and consolidating their market share even as new entrants appear.
For instance, Amazon enjoyed the first-mover advantage as an early entrant into e-commerce, which has allowed it to remain dominant in online retail even as competitors have emerged.
FMA in the Crypto Market
In the context of cryptocurrencies, being a first mover often means:
- Establishing a brand. The first cryptocurrency or blockchain project in a niche can establish itself as the go-to brand.
- Building network effects. Early adopters and users tend to stick with the first mover, leading to the creation of a robust and expansive network. This can be a significant barrier for new entrants trying to compete.
- Accumulating resources. First movers often accumulate significant resources, including funds, talent, and partnerships, which can further solidify their position.
- Setting standards. Early entrants can set the standards and protocols for an industry, influencing how future projects are developed.
The first-mover advantage can be significant in the blockchain sector as there is still a relatively limited market with a small number of users. As projects depend on their reputation and visibility, gaining a large user base at an early stage can enable them to gain a significant lead.
Moving between cryptocurrency networks or exchanges can incur transaction charges and carry potential risks, making users hesitant to move to a new one. Subsequent entrants may need to spend significant time and effort to persuade them to switch.
Examples of the First-Mover Advantage in Crypto
- Bitcoin (BTC). Bitcoin, created by an anonymous entity known as Satoshi Nakamoto, was the first cryptocurrency. It introduced the world to blockchain technology and paved the way for the thousands of other cryptocurrencies that now exist. Bitcoin’s first-mover advantage is evident in its market dominance and recognition as a digital store of value. It is often referred to as digital gold and has become synonymous with the entire crypto industry.
- Ethereum (ETH). Ethereum brought smart contracts and decentralized applications (dApps) to the forefront and has played a pivotal role in shaping the decentralized finance (DeFi) ecosystem. Its first-mover advantage has led to it becoming the platform of choice for smart contract developers, creating an entire ecosystem of tokens, projects, and decentralized networks.
- Binance (BNB). One of the largest cryptocurrency exchanges, Binance enjoyed a first-mover advantage by rapidly expanding its services and offerings to become a preferred platform for traders and investors.
While early market entrants start with an advantage, there are also disadvantages of being a first mover:
- Complacency. First movers can become complacent and fail to innovate, ceding ground to more agile competitors.
- Cost of early entry. Entering a new market early can raise additional costs and challenges, while competitors that enter the market later can capitalize on some of the mistakes the first mover has made or even improve some of their offerings.
- Technical limitations. First movers can face technical limitations and scalability issues that newer projects can learn from and improve upon.
- Regulatory scrutiny. Establishing a position in a new market can attract regulatory attention, which can lead to legal challenges and compliance issues.
The first-mover advantage refers to the benefits a project can gain as an early entrant into a new market, including brand recognition, network effects, and resource accumulation.
However, it does not guarantee long-term success.
To maintain their advantage, first movers must adapt, innovate, and stay ahead in the fast-paced cryptocurrency space. Investors should consider the potential advantages and risks associated with first-mover projects when making investment decisions.