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Why are so many cryptocurrencies failing? Why do some succeed?

If there’s one thing we all know about the cryptocurrency industry, it’s that it’s completely unpredictable. A coin that is doing incredibly well one day could fall badly the next, with so many factors playing into the success of any given asset. So why exactly do so many cryptocurrencies fail, and how do the lucky few manage to succeed?

Why are there so many cryptocurrencies?

Although popular coins like Bitcoin and Ethereum dominate the crypto market, there are many, many more coins and tokens out there. In fact, there are over 20,000 cryptocurrencies today. Many of them are now worthless and inactive, but there are still over 10,000 left in the game. So why are there so many cryptos out there?

While the crypto industry is now undoubtedly huge, its boom is relatively recent. And, since this market has only grown in the last few years, many people are eager to participate in the hype and make money from the growing demand. This is one of the main reasons why there are so many cryptocurrencies today.

But that’s not the only factor playing into the crypto surge. Many people also believe that cryptocurrency is the future of finance, with its lack of centralization, increased security, and transparency. This passion motivates many crypto entrepreneurs in addition to the possibility of financial success.

Cryptocurrencies can also have a purpose beyond the store of value. For example, decentralized projects may want to use their own native token as a form of client payment or may want their own governance token for voting purposes. This opens another niche for crypto development.

It is also incredibly easy to create your own cryptocurrency. However, while you can create crypto from scratch using your own code and protocols, it is time consuming and requires a high level of skill and knowledge base. After all, a coin requires its own blockchain, and building one can be a massive undertaking if done from scratch.

This is why developers often choose to create tokens, which exist on top of another blockchain, like Ethereum. In fact, one can now create a cryptocurrency in minutes even if their technical experience is low, which makes crypto development basically an open door for everyone.

Why are so many cryptocurrencies failing?

1. A saturated market

Several factors play into the failure of so many cryptocurrencies, one of the biggest being oversaturation. Although the cryptocurrency market is relatively young, it is already overrun with budding entrepreneurs and developers. This has given way to an oversaturation of available coins and tokens, to the point that it is now incredibly difficult to stand out from the crowd.

Due to this challenge, many who develop their own cryptocurrencies end up abandoning their project when the asset in question does not gain any traction or value. As a result, there are currently thousands of “dead” cryptocurrencies that are no longer active, which shows how difficult it can be to climb the ladder in this industry.

2. Lack of stability

The cryptocurrency market is very sensitive to a series of factors that could cause a crash. If you love crypto, you have probably noticed how the price of a coin or token often fluctuates several times a day. The value of cryptocurrencies mainly depends on supply and demand. If the supply of a coin exceeds the demand, the price will probably go down, but if the demand exceeds the supply, there is a good chance that the price will go up.

The problem with this is that the demand for an asset changes regularly. One week, a hot new project with its own native token can see big price increases due to a surge in popularity. However, when things die down and interest fades, demand fades with it. This usually has a ripple effect on the price of the token and is a risk that should be understood when entering the crypto space.

But many other factors can also affect the price of a crypto, such as scandals, regulations, and events in the traditional financial world. For example, when the global stock market faces a decline, the crypto market usually experiences a similar decline. Indeed, many crypto investors also have money in the traditional stock market. So when the latter suffers, investors expecting a crash will often unload their crypto holdings before prices fall too severely.

3. Lack of enforcement

There are a number of different uses a cryptocurrency can have. Most people are more familiar with store-of-value cryptocurrencies, such as Bitcoin. But many coins and tokens have additional utility in other areas.

Take Ethereum, for example, another popular cryptocurrency. Although Ethereum can only be invested to make a profit, you can also use Ethereum to stake, pay gas and transaction fees on the Ethereum network, and pay for services in Ethereum-based projects. This gives Ethereum a lot of utility and helps maintain its value.

However, some cryptocurrencies simply do not have enough application.

Why are some cryptocurrencies successful?

As is the case with crypto failures, a series of factors contribute to the success of a coin or token. The state of the market at the time a given asset is launched can be a particularly common deciding factor in its success. If an individual were to flip a coin when the market was doing very well and demand was high across the board, they would have a better chance of succeeding.

However, if an asset is launched during or before a crash, it can prevent it from accumulating value, as fewer investors look to spend money or trade, especially on risky and unknown projects. This is why it is important to understand the state of the market before making big moves.

Bitcoin is a great example of a coin launched at the right time. When Bitcoin was launched it was the only cryptocurrency in existence, so its legacy as a world first played a part in its huge growth. But this scenario is entirely unique to Bitcoin and cannot be replicated by new assets.

Applying a coin or token can also contribute to its success. We have already discussed how Ethereum’s diverse uses have contributed to its success, but a wide range of other cryptos have a similar advantage, such as the stablecoin known as DAI. DAI plays a vital role in the MakerDAO ecosystem. With MakerDAO, users can borrow DAI while depositing different decentralized collateral or lend DAI to others.

While some invest in DAI for other reasons, its use within MakerDAO gives it a purpose beyond the store of value, which can help secure its future and maintain its value.

In addition to these factors, there is another very important point to consider: marketing. Ultimately, the cryptocurrency industry is all about the money. Investments, exchanges, loans – these elements are an integral part of the crypto market. So when you’re developing a coin and want to start amassing value, marketing can become your best friend.

But marketing can go wrong or be ineffective, as it has so many times before. So if someone has developed a new coin and doesn’t have the luxury of instant association or hype, it can be very difficult to generate interest. Many opt for social media to promote their new projects or cryptos, but it is not a foolproof solution either. In short, it often takes a well-structured marketing campaign to gain significant traction.

The crypto industry is unpredictable

We all know how volatile the crypto market can be, with coins and tokens constantly running into obstacles and challenges that threaten their value. For this reason, developing crypto can be a real struggle, with so many assets already battered by the fragile nature of the market. But that doesn’t mean it’s all doom and gloom for crypto entrepreneurs, and we’re still seeing new projects reach the heights of success to this day. As is always the case with crypto, we will have to wait and see which asset changes the game next.

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