Are there too many cryptocurrencies?

The cryptocurrency business has grown at a staggering tempo. There are actually virtually 21,000 completely different cash in existence, throughout quite a lot of subsectors. From metaverses to decentralized finance, buyers are spoiled for alternative.

However a burning query, particularly amongst crypto skeptics, is that this: Are there too many cryptocurrencies? We have repeatedly seen how new altcoins could be created within the blink of an eye fixed. Tokens popped up hours after Will Smith slapped Chris Rock on the Oscars — pumping and dumping on low liquidity. And following the demise of Queen Elizabeth, the markets had been flooded by a flurry of “memecoins” bearing her identify. Some critics felt this was in poor style and argued it was “a foul search for crypto.” 

Regardless of the proliferation of hundreds of cryptocurrencies — some with names impressed by main cash — Bitcoin and Ethereum proceed to dominate. Mixed, the valuations of those two digital property command a 58.2% share of the whole market. All of this leaves altcoins battling for a a lot smaller piece of the pie.

Is alternative factor? 

Let’s start by discussing the arguments in favor of this overwhelming assortment of cryptocurrencies.

Whereas Bitcoin and Ether are universally acknowledged and accepted, it is honest to say that many blockchains and crypto initiatives would favor to have their very own tokens. In some circumstances, it is a necessity too — soccer fan tokens would not make sense except the likes of Manchester Metropolis and Paris Saint-Germain had been capable of supply their very own digital property.

Stablecoins are one other group of cryptocurrencies the place quite a lot of choices is essential. Whereas property pegged to the U.S. greenback dominate the panorama, some buyers choose to make use of stablecoins denominated of their native fiat foreign money, comparable to euro or pound. And given how some stablecoin issuers have confronted uncomfortable questions on whether or not the cash in circulation are correctly backed by exhausting foreign money in reserve, the range on supply empowers buyers with the power to carry out due diligence and discover an asset that matches their urge for food for threat.

The cryptocurrency market is considerably much like a superstore. Inside the largest retailers, you may come throughout 10 sorts of the identical cereal — and numerous sorts of ketchup. However every has a distinct worth level and a worth proposition. Specialists inside these shops can have additionally carried out style checks and security checks earlier than permitting the merchandise on cabinets.

You could possibly argue that it is a related story relating to crypto exchanges. Buying and selling platforms comparable to HitBTC have a rigorous itemizing course of to make sure that all well-established cryptocurrencies are supplied to its clients — in addition to new tokens that present potential. Given what number of digital property are actually in existence, this could generally really feel like discovering a needle in a haystack.

The downsides

In fact, there’s two sides to each coin. With hundreds of various altcoins on supply, the will to repeatedly create new cryptocurrencies arguably results in additional fragmentation within the business. A challenge’s insistence that solely its native token can be accepted can add prices for shoppers too, as a result of they’re going to have to make conversions from better-known cryptos — and pay buying and selling charges alongside the best way. 

It is not possible to think about a world the place Gmail customers might solely ship emails to others who’ve a Gmail account, with Yahoo and Outlook additionally working as walled gardens. However this appears to have turn into the established order within the crypto business — and though efforts are being made to spice up cross-chain communication and forge bridges between blockchains, there’s nonetheless a number of work to be accomplished. These bridges can even endure unlucky safety vulnerabilities, as we noticed with the Ronin hack again in March.

And on the difficulty of whether or not there are too many cryptocurrencies, some critics argue this proves how ineffectual the market is. What is the level of getting Bitcoin, which has a set circulating provide of 21 million, when there’s an infinite provide of different cash? 

What the longer term seems like

Figures from 99 Bitcoins counsel that there are greater than 1,700 lifeless cash — a veritable graveyard of failed digital property that endure from inactive growth, low buying and selling quantity, poor on-line presence, a scarcity of listings on main exchanges, or all 4. Given we’re at the moment in a bear market, it is virtually sure this determine will rise within the months forward.

It is price remembering that the crypto bull run of 2021 can draw parallels with the dotcom growth 20 years earlier. Again within the early 2000s, frenzied exercise noticed an explosion within the variety of web firms buying and selling on the inventory market, and plenty of of them boasted sky-high valuations. A lot of them ended up going bust, together with Pets.com and Boo.com.

In a latest report, KPMG warned that cryptocurrencies missing “clear and powerful worth propositions” might additionally find yourself dying out within the subsequent few months, however added: “That might really be fairly wholesome from an ecosystem standpoint as a result of it will clear away a number of the mess that was created within the euphoria of a bull market. The most effective firms would be the ones that survive.”

And that is the opposite lesson that may be drawn from the bull run — irrespective of how brutal or extended a bear market is, some cryptocurrencies will survive and thrive. This additionally stays a vastly experimental expertise, and there are certain to be failures alongside the best way. 

HitBTC argues that the crypto markets are nonetheless removed from maturity. It describes itself as one of many pioneers of the change market, given the way it launched in 2013. The corporate says safety, ease of use and reliability are high priorities — alongside aggressive charges and a secure infrastructure. It now lists greater than 1,000 cryptocurrencies, and in addition affords staking and futures.

The crypto business is modern, and thrilling use circumstances are regularly rising for digital property. Due to this, the variety of new cryptocurrencies in existence is unlikely to gradual anytime quickly. This implies it is all the way down to buyers to carry out detailed due diligence on which cash to put money into — and exchanges should play an instrumental function in guaranteeing that they solely record credible cash that add worth to the ecosystem.