The cryptocurrency industry has grown at a rapid pace. There are now nearly 21,000 different currencies in existence, across various subsectors. From metaverses to decentralized finance, investors are spoiled for choice.
But a burning question, especially among crypto skeptics, is this: Are there too many cryptocurrencies? We have repeatedly seen how new altcoins can be created in the blink of an eye. Tokens appeared hours after Will Smith slapped Chris Rock at the Oscars – pumping and dumping on low liquidity. And after the death of Queen Elizabeth, the markets were flooded with a set of “memecoins” bearing her name. Some critics felt this was in bad taste and argued that it was “a bad look for crypto.”
Despite the proliferation of thousands of cryptocurrencies – some with names inspired by major currencies – Bitcoin and Ethereum continue to dominate. Combined, the valuations of these two digital assets command a 58.2% share of the entire market. All of this leaves altcoins fighting for a much smaller piece of the pie.
Is choice a good thing?
Let’s start by discussing the arguments in favor of this overwhelming assortment of cryptocurrencies.
While Bitcoin and Ether are universally recognized and accepted, it is fair to say that many blockchain and crypto projects would prefer to have their own tokens. In some cases, it’s also a necessity – football fantokes wouldn’t make sense unless the likes of Manchester City and Paris Saint-Germain could offer their own digital assets.
Stablecoins are another group of cryptocurrencies where various options are important. While assets linked to the US dollar dominate the landscape, some investors prefer to use stable currencies denominated in their local currency, such as the euro or pound. And considering how some stablecoin issuers have faced uncomfortable questions about whether the coins in circulation are properly backed by hard currency in reserve, the variety offering empowers investors with the ability to perform due diligence and find an asset that matches their appetite for risk.
The cryptocurrency market is a bit like a supermarket. Inside the biggest retailers, you can find 10 types of the same cereal – and countless varieties of ketchup. But each has a different price point and value proposition. Specialists within these stores will also conduct taste tests and safety checks before allowing the products on shelves.
You could argue that it’s a similar story when it comes to crypto exchanges. Trading platforms such as HitBTC has a rigorous listing process to ensure that all well-established cryptocurrencies are offered to its customers – as well as new tokens that show potential. Given how many digital assets there are now, this can sometimes feel like finding a needle in a haystack.
Of course, there are two sides to every coin. With thousands of different altcoins on offer, the desire to continuously create new cryptocurrencies is likely to lead to further fragmentation in the industry. A project’s insistence that only its native token will be accepted can add costs for consumers as well, as they’ll have to make conversions from better-known cryptos — and pay merchant fees along the way.
It’s impossible to imagine a world where Gmail users could only send emails to others who have a Gmail account, with Yahoo and Outlook also functioning as walled gardens. But this seems to have become the status quo in the crypto industry – and while efforts are being made to speed up cross-chain communications and forge bridges between blockchains, there is still a lot of work to be done. These bridges can also suffer from unfortunate security vulnerabilities, as we saw with the Ronin hack in March.
And on the subject of whether there are too many cryptocurrencies, some critics argue that this proves how inefficient the market is. What’s the point of having a Bitcoin that has a fixed circulating supply of 21 million when there is an unlimited supply of other coins?
What does the future look like?
Figures of 99 Bitcoins to suggest that there are more than 1,700 dead coins – a veritable graveyard of failed digital assets that suffer from inactive development, low trading volume, poor online presence, lack of listings on major exchanges, or all four. Given that we are currently in a bear market, it is almost certain that this figure will increase in the coming months.
It is worth remembering that the crypto bull run of 2021 can draw parallels with the dotcom boom 20 years earlier. Back in the early 2000s, frenzied activity saw an explosion in the number of Internet companies trading on the stock market, and many of them boasted sky-high valuations. Many of them ended up going bust, including Pets.com and Boo.com.
In a recent report, KPMG warned that cryptocurrencies lacking “clear and strong value propositions” could also end up dying out in the next few months, but added: “That could actually be quite healthy from an ecosystem point of view because it will clear up some of the mess that was created in the euphoria of a bull market. The best companies will be the ones that survive.”
And that’s the other lesson that can be learned from the bull run – no matter how brutal or prolonged a bear market is, some cryptocurrencies will survive and thrive. This also remains an extremely experimental technology, and there are bound to be failures along the way.
HitBTC argues that the crypto markets are still far from maturity. It describes itself as one of the pioneers of the exchange market, considering how it launched in 2013. The company says that security, ease of use and reliability are top priorities – along with competitive fees and a stable infrastructure. It now lists over 1,000 cryptocurrencies, and also offers staking and futures.
The crypto industry is pioneering, and exciting use cases continue to emerge for digital assets. Because of this, the number of new cryptocurrencies in existence is unlikely to slow down anytime soon. This means that it is up to investors to perform due diligence on which coins to invest in – and exchanges must play an instrumental role in ensuring that they only list credible coins that add value to the ecosystem.
Disclaimer Cointelegraph does not endorse any content or product on this page. While we aim to provide you with all relevant information we could obtain, readers should do their own research before taking any actions related to the company and bear full responsibility for their decisions, and this article cannot be considered as investment advice.