If there’s one thing the bitcoin sector has taught us all, it’s that nothing can be predicted. With so many variables influencing any specific asset’s performance, a coin that is doing very well one day may see a devastating crash the next. Then why do so many cryptocurrencies fail, and how do the fortunate ones succeed?
Why Is There Such A Surge In Cryptocurrencies?
Despite the fact that prominent currencies like Bitcoin and Ethereum dominate the cryptocurrency industry, there are a huge number of other coins and tokens. In actuality, there are already more than 20,000 cryptocurrencies. Over 10,000 of them are still live despite the fact that many of them are now useless and inactive. What gives rise to the proliferation of cryptocurrencies?
Although the crypto sector is unquestionably large currently, its boom is only a few years old. Many individuals are eager to cash in on the buzz and profit from the market’s increasing demand since it has just recently begun to expand. This is one of the main explanations for why there are now so many cryptocurrencies.
However, this isn’t the only element influencing the rise of cryptocurrency. With its absence of centralization, enhanced security, and transparency, many individuals also think that cryptocurrencies represent the financial system of the future. Many crypto entrepreneurs are motivated by this enthusiasm rather than the prospect of financial gain.
Beyond serving as a store of wealth, cryptocurrencies may serve other purposes. Decentralized projects, for instance, could desire to utilise their own native token as a method of client payment or would need their own governance token for voting. The development of cryptocurrency now has another market.
The process of making your own coin is also quite simple. While it is possible to create a cryptographic system from scratch using your own code and protocols, doing so takes a lot of effort and expertise. After all, a currency needs its own blockchain, and building one from scratch may be a major task.
Because of this, developers often decide to build tokens that sit on top of another blockchain, like Ethereum. In fact, even those with no technical skills may now generate a cryptocurrency in a matter of minutes, therefore opening up the field of cryptocurrency production to everyone.
The Reasons Why So Many Cryptocurrencies Fail
- saturation of the market
2. Insufficient stability
3. Insufficient Application
1. Saturation of the Market
Oversaturation is one of the main causes contributing to the failure of so many cryptocurrencies. Even though the cryptocurrency sector is still relatively new, it is already flooded with aspiring business owners and programmers. It is currently very difficult to stand out from the crowd because to the oversupply of coins and tokens that has resulted from this.
Due to this difficulty, many people who create their own cryptocurrencies end up quitting their project when the aforementioned asset doesn’t achieve any popularity or worth. Because of this, there are thousands of “dead” cryptocurrencies that are no longer in use, which simply goes to show how difficult it can be to advance in this market.
2. Insufficient Stability
The market for cryptocurrencies is particularly prone to a variety of circumstances that might result in a collapse. If you’re interested in cryptocurrencies, you’ve definitely observed how a coin’s or token’s price will often change many times during the day. The supply and demand of cryptocurrencies largely determine their value. The price of a coin will probably decrease if the supply exceeds the demand, while the price is likely to increase if the demand outweighs the supply.
This has the drawback that the demand for an asset is always fluctuating. A hot new project with its own native coin may see significant price increases one week as a result of a surge of popularity. But when things wind down and attention dwindles, so does demand. This often has an impact on the price of the token and is a risk that must be recognised while working in the cryptocurrency industry.
But a number of other elements, such as scandals, rules, and developments in the conventional financial sector, may also have an impact on a cryptocurrency’s price. For instance, the crypto market often dips when the world stock market takes a negative turn. This is due to the fact that many cryptocurrency investors also participate in the conventional stock market. Therefore, investors anticipating a collapse would often sell their crypto assets before the prices fall too much when the latter falls.
3. Insufficient Application
A cryptocurrency may be used for many different things. Generally speaking, store-of-value cryptocurrencies like Bitcoin are more well-known. Many coins and tokens, however, have other purposes.
Consider Ethereum, another well-known cryptocurrency. Ethereum can be purchased with the sole intent of making a profit, but it can also be used to stake, pay transactional fees and gas on the Ethereum network, and pay for services within projects that use the cryptocurrency. This increases the usefulness of Ethereum and aids in preserving its value.
What Causes Success in Some Cryptocurrencies?
The success of a coin or token depends on a variety of factors, just like with crypto failures. A common make-or-break factor in an asset’s success is the state of the market at the time of its launch. A person would have a better chance of success if they launched a coin when the market was doing well and demand was high across the board.
A crash, however, may prevent an asset from ever increasing in value because fewer investors will be looking to spend money or trade, particularly on risky, unproven projects. This is why it’s crucial to comprehend the market’s current situation before making any significant decisions.
A coin that was released at the right time is Bitcoin. Since Bitcoin was the first cryptocurrency to be introduced, its legacy as a global first has contributed to its enormous growth. However, this scenario is exclusive to Bitcoin and is not reproducible by more recent assets.
The use of a currency or token may also influence its success. We’ve previously spoken about how Ethereum’s many applications have contributed to its growth, but a broad range of other cryptocurrencies also benefit from this, including the stablecoin known as DAI. DAI is a crucial component of the MakerDAO ecosystem. Users may borrow DAI via MakerDAO while depositing various forms of decentralized collateral or lend DAI to others.
Although some people invest in DAI for various purposes, its usage inside MakerDAO provides it a function that goes beyond that of a store of money, which may help to ensure its future and preserve its value.
Another crucial thing to take into account, in addition to these variables, is marketing. In the end, the bitcoin sector is just financial. Loans, swaps, and investments are all essential components of the cryptocurrency market. Therefore, marketing might become your closest buddy when you create a currency and want to start building value.
However, as has happened many times before, marketing may go awry or be useless. Therefore, it may be highly challenging to generate interest in a new currency if the developer does not have the luxury of affiliation or quick publicity. Many choose to use social media to advertise their new ventures or cryptocurrencies, but this is also not a foolproof strategy. In conclusion, achieving considerable traction often requires a well planned marketing strategy.
The Cryptocurrency Market Is Uncertain. We are all aware of how unstable the cryptocurrency market can be, with coins and tokens often encountering difficulties that jeopardize their value. Due to the market’s unstable nature and the many assets that have previously been defeated by it, crypto development might be very difficult. However, this does not imply that all is lost for cryptocurrency entrepreneurs; fresh initiatives continue to achieve great success to this day. We’ll have to wait and watch whatever cryptocurrency asset alters the game next, as is usually the case.