The cryptocurrency industry has grown at an amazing pace. There are now approximately 21,000 different coins in a variety of sub-sectors. From metaverses to decentralized finance, investors are spoiled for choice.
But the burning question, especially among crypto skeptics, is: Are there too many cryptocurrencies? We have seen time and time again how new altcoins can be created in the blink of an eye. The tokens surfaced hours after Will Smith slapped Chris Rock at the Oscars — sending cash down and sinking it. And after the death of Queen Elizabeth, the markets were flooded with a wave of “memecoins” that bear her name. Some critics felt that this was in bad taste and said it was a “bad appearance for cryptocurrency.”
Despite the proliferation of thousands of cryptocurrencies – some with names inspired by the major currencies – Bitcoin and Ethereum remain dominant. Combined, the valuations of these two digital assets command a 58.2% share of the entire market. All this leaves the altcoins jostling for a much smaller piece of the pie.
Is choice a good thing?
Let’s start by discussing the arguments in favor of this massive group of cryptocurrencies.
While Bitcoin and Ether are universally recognized and accepted, it is fair to say that many blockchain and cryptocurrency projects prefer to have their own tokens. In some cases, it’s also necessary – football fan tokens won’t make sense unless the likes of Manchester City and Paris Saint-Germain can offer their own digital assets.
Stablecoins are another group of cryptocurrencies where a variety of choices are important. While USD-linked assets dominate the scene, some investors prefer to use stablecoins denominated in their local fiat currency, such as the Euro or the British Pound. Given how some stablecoin issuers have faced uncomfortable questions about whether the circulating coins are properly backed by the hard currency in reserve, the diversity on offer enables investors to perform their due diligence and find an asset that matches their appetite for risk.
The cryptocurrency market is a bit like supermarkets. Inside the biggest retailers, you can find 10 types of the same grains – and endless varieties of ketchup. But each has a different price point and value proposition. Specialists in these stores will also perform taste tests and safety checks before allowing products to be on the shelves.
You could say it’s a similar story when it comes to cryptocurrency exchanges. Trading platforms like HitBTC have a rigorous listing process in place to ensure they offer all of the established cryptocurrencies to their clients – as well as new tokens showing 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 digital currencies on offer, it can be said that the desire to constantly create new digital currencies is leading to more fragmentation in the industry. The project’s insistence on accepting only its native token could add costs to consumers as well, as they would need to make transfers from well-known cryptocurrencies — and pay trading fees along the way.
It’s impossible to imagine a world where Gmail users can only send emails to others who have a Gmail account, with Yahoo and Outlook also serving as walled gardens. But this appears to be becoming the status quo in the crypto industry – and despite efforts to enhance cross-chain connectivity and build bridges between block chains, there is still much work to be done. These bridges can also suffer from unfortunate security holes, as we saw with the Ronin hack back in March.
On the question of whether there are too many cryptocurrencies, some critics argue that this proves how ineffective the market is. What is the point of owning Bitcoin, which has a fixed circulating supply of 21 million, when there is an unlimited supply of other currencies?
What does the future look like?
Figures from 99 bitcoin indicate that there are more than 1,700 dead coins – a veritable graveyard of failed digital assets suffering from inactive development, low trading volume, poor online presence, no listings on major exchanges, or all four . Since we are currently in a bear market, this number will almost certainly rise in the coming months.
It is worth remembering that the rise of the cryptocurrency in 2021 can be compared with the dot-com boom of 20 years ago. Back in the early 2000s, frenetic activity saw an explosion in the number of internet companies traded on the stock market, many of which boasted very high valuations. Many of them ended up in bankruptcy, including Pets.com and Boo.com.
In a recent report, KPMG warned that cryptocurrencies that lack “clear and strong value propositions” could also wind up eventually ending up in the next few months, but added: “This could actually be quite healthy from an ecosystem point of view because