Is crypto heading towards unwanted market saturation?
Well, tbh, we all anticipated that we will be asking this particular question at least five years from now. But being a participant in the investor journey in cryptocurrencies, investment psychology has taken a roller coaster ride over the past couple of years. Could not get my point? The mentioned market statistics might help!
What if I told you that we already crossed the number of cryptocurrencies listed on exchanges against the total number of stocks listed on NASDAQ (4980 as of April 11th 2022) in July 2021 itself? Obviously, the regulatory due diligence process for listing IPOs has restricted the number somehow, but we are comparing a stock exchange with 50 years of existence against a market trend that started in 2019 and already soared the number. To be more precise on the number, CoinmarketCap, one of the most renowned price tracking websites for cryptocurrencies lists the total number of crypto coins as around 19,000.
Why am I bothering over the growing number of cryptocurrencies?
The narrative brought by crypto gen Zs of central banks and authorities becoming printing presses of fiat currencies can be thrown at their own plates. Here’s how
A list of dead coins provided by Coinopsy reflects that there are about 2400 dead coins in the market. For further clarity, dead coins refer to cryptocurrencies that have been abandoned, used as a scam, their website is down, have no nodes, have wallet issues, don’t have social updates, have low volume (below $1000) or developers have walked away from the project.
The number nearly accounts for 12% of the total cryptocurrencies available. Furthermore, the valuation sucked by these kinds of projects in the form of rug pulls again led to the rise in value received by scammers.
The total yearly crypto value received by scammers registered a second new all-time high of around $7.5Bn 2021, wherein approximately $2.5Bn were considered rug pulls.
Surprisingly, we have developed a so-called investment research methodology (check legitimacy of the team, smart contract audits, community engagement) to isolate our investment against such rug pulls. However, the onboarding hype of a new and potential appealing project which could take us to the moon creates a delusion among new investors and the investment research no longer exists!
Maybe that’s why the average lifespan of a scam project has dropped down to 70 days in 2021 as the scammers had their wallets filled with such hype investors. But, tbh, this infographic could have another opposite meaning stuck to it. The average lifespan of scam projects might have been reduced due to increasing regulatory foresight and the capabilities of financial forensics for cryptocurrencies. But you never know!
Need and compulsion of due diligence for crypto listing
First thing first, I am referring to due diligence infiltrating at the lowest and most convenient level of public fundraising. Basically, it initiates with the token minting with a live price chart available on exchanges such as PooCoin. Such projects raise millions of dollars by just creating a token with the address on a given blockchain network, creating hype on social media handles. Listing on decentralized or centralized exchanges hasn’t entered the picture yet!
Therefore, placing a formidable due diligence process before token minting might become a necessity considering the number of cryptocurrencies taking birth on each given day. For gaining investors’ confidence there has to be a NASDAQ or NIFTY or FTSE ensuring that only legitimate projects are asking for cryptographic value on their products and services.
Market Saturation on the way?
Going by the definition, market saturation arises when the volume of a product or service in a marketplace has been maximized. I strongly believe that we are in the innovation and development stage when considering cryptocurrencies. Offerings in the form of DeFi, NFTs and metaverse have just started to establish market-fit services. Institutional adoption in the form of VCs, incubators, and HNI investors are providing more validation to this particular market.
However, if the speed of new crypto projects goes with the current acceleration, we might face what I call a pre-mature market saturation wherein the rising number of crypto projects for a particular segment can unwantedly reduce the interest of investors. Worst case scenario: this may also result in liquidity getting consolidated within the top 50 or 100 coins.
Therefore, vetting/due diligence/public raise procedure might be the strongest requirement within any sort of industry stakeholder helping projects to access public exposure.
