The altcoin market is up 43% this year and some people are getting excited.
Let’s not get ahead of ourselves.
We have plenty of reasons to get excited about altcoins and none of them have anything to do with price. I talked about both good and bad in my newsletter, Crypto is Easy.
It’s nice to see prices go up, but many altcoins will never reach their previous all-time high. Most will die.
No country for old tokens
For example, look at the list of the top 100 altcoins. Most will not be there when the market recovers.
Only 6 altcoins from 2013’s top 100 stayed in the top 100 through January 2018.
From January 2018 to November 2021, 26 altcoins stayed in the top 100 — but 21 slid down the list and only 14 ever made it back to their 2017 levels.
If those are the results you get from the winners, you can imagine how the losers might fare. How many altcoin charts look like DASH/USD from TradingView, January 29, 2023?
This chart looks worse against bitcoin:
I have my thoughts about which will survive in my list of top 100 altcoins.
Crypto has spawned at least 30,000 tokens, dozens of smart contracts platforms, dozens more DEXs, DeFi tokens out the wazoo, and more DAOs than you can count — and that’s before you count NFTs.
There’s just not enough talent and money to support all of them and also feed the new projects that will come along in the coming months and years.
Already, hacks and protocol failures have doomed many projects. Others are obsolete as developers keep producing new and better technology. Bitcoin won the fork wars.
With tighter monetary policies among the world’s Western economies and financial woes for everybody else, humans have less money to go around. Protocols will have to actually deliver something of value to justify people’s investment in them.
Few of them do. You can see this with your own eyes (and wallet).
From many, one (or a few)
Even if you invest in the projects in my Altcoin Reports, you’re going to end up with a few dogs.
Speculative enthusiasm can get you only so far. If you believe that 99% of altcoins will die, that leaves only a few hundred survivors. If you believe that 95% of altcoins will die, that leaves only 1,500 cryptocurrencies to choose from.
Is that cause for concern?
No, that’s the whole point of crypto. When anybody can create a new financial system from their laptop and scale it globally without restraint, you’d expect a lot of failures. Let time and markets sort out the winners and losers.
With every other technology, you start with a lot of competing projects. Over time, network effects and competition consolidate the market into a few key players.
For example, Apple, Google, and Microsoft beat dozens of competitors over decades. Operating systems went through a similar evolution until the mass of activity coalesced around Linux, macOS/iOS, Android, and Windows.
Car brands once numbered in the hundreds. Batteries still come in different sizes, shapes, and features to fit a wide range of usages.
Call it evolution or creative destruction, such is the way of the world. After iteration, experimentation, and a few business cycles, you end up with a handful of options, each with its own benefits and drawbacks.
In crypto’s case, we’re talking about protocols, each with its own strengths, weaknesses, rules, communities, and gatekeepers.
Wall Street beckons
That’s the situation now, before the legacy financial players get into the game. Think ahead for when they do.
In 2023, US legislation will hand crypto to banks and Wall Street “for your safety” to keep out the scammers, terrorists, frauds, and crypto bros.
They’ll have to segregate their funds and operations from the legacy system, register with the authorities, and report their activities like other legacy businesses. A small price to pay for a cut of the profits you can make from crypto.
Once that happens, legacy finance will play a role in deciding winners and losers.
Fund managers will pick the protocols to put their clients’ money into. If they pick yours, you instantly get a big source of liquidity from regulated funds and traditional investors.
On top of that, banks and financial firms will build their own goods and services on crypto rails. Whichever protocols support those crypto rails will get a lot more users, money, and attention than the ones that don’t.
Some will also launch their own altcoins or buy stakes in new projects.
After all, we can’t let Aunt Sally and Uncle Morton give their money to those “unregulated” decentralized platforms. No, they should only use the “safe” platforms that legacy finance chooses for them.
Much like VC tokens sucked capital from community-driven protocols and upstart projects, Wall Street tokens will suck capital from projects that do great things but don’t fit in whatever box or vision regulators and firms create. This raises the hurdle for other projects.
Eventually, a few of today’s protocols will acquire such large networks, actual users, and technical savvy that they will dominate the 21st Century finance.
If all goes well, you’ll own some of those — enough to make up for the rest of your portfolio that inevitably goes to $0.
Now and later
Does that mean you should sit on your hands and wait to buy altcoins until you know who will win or lose? Until the US works out its crypto laws? Until the market gets rid of scams and vaporware?
No. you’re getting great deals now on any altcoin that survives. I talk about this often in my market updates, for example, the one from January 18, 2023.
Don’t rush, just act while you have a chance, before the market recovers. Pace yourself and stake when you can.
Put a little now and a little later. You never know which of your altcoins will die or thrive, but when you spread out your investments over time and mostly after the crashes, you get to see how the projects evolve.
It’s fun to think about the prospects of your favorite altcoins. It’s not fun to contemplate their demise, but death is part of crypto.
Each failed project lets time, effort, and money flow to the good ones.
You can buy this post as an NFT on Mirror.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio and connect with him on Superpeer.