Cryptocurrencies had a great year in 2021. In this period, we have seen the market go from being classified as a billion-dollar economy into a trillion-dollar economy. Aside from that, cryptocurrencies are gaining visibility in the mainstream world with, for example, El Salvador's adoption of Bitcoin as the official digital currency. As a result, investors are looking for the "new Bitcoin" on the market, hoping to find a great alternative in so-called altcoins. Unfortunately, many traders value an altcoin exclusively…
On November 8th, 2021, the cryptocurrency market cap crossed $3 trillion. Institutions, billionaires, and celebrities continue to enter the space, bringing both money and promotion. Meanwhile, exchange apps like Crypto.com are growing in popularity, after recently topping the Google Play Store.
The enthusiasm and activity within the crypto market are undeniable. However, that doesn’t mean that there is plenty of room for new cryptocurrencies.
Currently, over 14 200 cryptos appear on CoinMarketCap. However, Bitcoin dominates over 43% of that market. And, Ethereum swallows another 19% of it. Therefore, that leaves a sea of altcoins scrambling for market space underneath them.
It could be that the developers abandoned many of these cryptocurrencies projects. So, they aren’t even “competing” in the industry anymore. However, even among active tokens, the reality is undeniable: the crypto market is massively oversaturated.
Here are three reasons why we know that’s the case!
We’ve Seen This Before
If you’re familiar with the four-year cycle theory, then you know that Bitcoin’s increasing stock-to-flow ratio has drastic effects on its price. You’re also probably aware that when Bitcoin moves, the rest of the market does as well. However, existing cryptocurrencies surge in value in the aftermath of Bitcoin’s supply shocks. However, new ones tend to form at an exceptional rate.
For example, nearly 5000 cryptocurrencies emerged from September 2020 to September 2021, according to CoinMarketCap. That’s over 68% higher than the previous year, during which there were about 7000 coins. A similar increase can be observed from 2016 to 2017: from 634 to 1335 – an over 100% increase, according to Statista. So Bitcoin bull-markets, like the one taking place now, breed new cryptocurrencies.
Easy come easy go, however. Those cryptos that gain popularity in bull markets are often quick to sink into oblivion during the following bear market.
Take Quark (QRK), for instance. It launched in late 2013, shortly before Bitcoin’s historic blow-off top to $1200 per coin. Quark rode the wave of momentum, skyrocketing to $0.25 within days. But when Bitcoin’s price came crashing back down in late December, as did Quark’s. Yet unlike Bitcoin, it never recovered. It’s a dead coin.
The same can be said of IOTA. For example, its price peaked during Bitcoin’s run to $20 000 in December 2017 but collapsed shortly afterward. It’s seen some signs of life in 2021 but has mostly faded into irrelevance.
So, most cryptocurrencies collapse when the market gets uneasy. But why did they find value in the first place?
Speculation and Scams Drive Many Cryptos
To nobody’s surprise, the cryptocurrency market is still largely speculative. This is even true of large-caps, but especially true of altcoins outside of the top 5. Many traders and speculators buy into cryptos only hoping that other traders will follow up, thus pumping the price. They don’t have a long-term holding plan in mind and have no interest in reading whitepapers to find real value.
An obvious demonstration of this is the success of various meme coins, which many describe as jokes. Dogecoin is the premier instance of this, which is now the 10th ranked cryptocurrency. Its creator designed it within a few hours and can’t “comprehend” that it has a chance of reaching $1 per coin. There’s also the rise of its recent variant, “Shiba Inu,” designed to be the “Dogecoin killer.” Both coins are valueless beyond speculation and move based on the casual tweets of Elon Musk.
Scammers are eager to take advantage of these reckless investors as well. A recent crypto scam based on a popular Netflix drama saw millions of investors’ funds stolen. “Squid Game” (SQUID) token literally prevented buyers from selling their tokens. This detail came out in the project’s whitepaper as well. Therefore, the fact that buyers didn’t notice is proof of their reckless, non-serious nature.
Low Public Understanding of the Crypto Market
Even for those altcoins which arguably have use-cases and good ideas, their odds of success in today’s environment are slim. Public understanding of cryptocurrency is still minimal, even if the industry continues to grow.
For example, a poll earlier this year found that over half of Australians believed Elon Musk created Bitcoin. Anyone vaguely familiar with the space knows that Bitcoin’s creator is unknown to this day.
Even in El Salvador, where Bitcoin is now legal tender, cryptocurrencies confuse the general population. For example, 9/10 Salvadorans said they do not have a clear understanding of it. Also, 8/10 of them have little to no confidence in using it.
If people can barely understand Bitcoin, the odds of knowing other cryptocurrencies on a deep level are virtually zero. As the dot-com bubble of the 2000s, most cryptocurrencies are likely to fail, even if they spur from good ideas.
These points lead to one conclusion: There is not enough real market space for the current cryptos available. History seems to be repeating with an up swell of new coins, and a total market crash soon to follow. Though Bitcoin and Ethereum will likely survive in the event of collapse, the remaining altcoins are definitely vulnerable.