New cryptocurrencies were constantly created. It only took Bitcoin a few years to establish itself, and the boom of new tokens started to become quite overwhelming for the market. It was generally known that more than 23,000 coins were created until some time ago. Still, not all were active, so we can assume that about half of this number consists of cryptocurrencies that are used every day and provide some kind of value for investors.
Many follow the same pattern and use case as Bitcoin, so purchasing them is similar to how to buy Bitcoin, according to Binance, which is why they’re called altcoins because they’ve been created as an alternative for the most volatile token in history. Ethereum, Litecoin and Cardano are only a few famous examples of how developers used the same white paper for inspiration but created something utterly unique from Bitcoin.
However, we recently noticed a decline in new tokens issued on the market, which seems to have gone off in the last three years. Apparently, after the bull market in 2021, when prices increased, and the market index reached considerable heights, fewer developers got into creating new tokens.
Less quantity, more quality?
As the number of tokens considerably decreased in the past three years, we’re seeing a trend of more technological developments in the crypto sector. Artificial Intelligence, NFTs and AR and VR are being introduced within blockchains, creating a seamless experience for investors, developers and traders.
These new trends are part of the green shoots of the crypto market. These advancements are building a more resilient ecosystem that handles the volatile market. That’s why the crypto industry goes towards social ecosystems, so more sectors blend in with blockchains.
At the same time, improving these networks is done through constant research and work with ZK-enabled modularity and composability to assess each blockchain layer. But what’s more important is that Bitcoin gets its deserved space in the technology sector through ETFs and new assets.
Hence, developers seem to want to focus more on developing the current ecosystem instead of creating new cryptocurrencies that already have increased value and are stable on the market. This is the case of Bitcoin and Ethereum, whose markets increased considerably despite challenges.
The crypto winter led to a liquidity decline
One of the reasons why fewer developers list new tokens on the market is the liquidity crisis in recent years. Usually, the crypto market needs high liquidity to have more accurate pricing, handle larger data sets and buy and sell orders more efficiently. However, during a liquidity crisis, assets can’t be converted to cash, so investors must deposit fiat money or trade to finance their transactions.
Such events have a serious impact on investors because their assets might get trapped in exchange platforms during market drops. This leads to significant investment losses that can’t be controlled because unforeseen economic shocks can always happen when least expected.
The crypto winter in 2022 started around the middle of the year, with crypto companies announcing one layoff after another. Even the price of Bitcoin and Ethereum suffered considerably low numbers, caused mainly by the FTX situation at the end of the year.
Not all tokens are of real value
The only new tokens issued recently were meme coins, like the Pepe coin that caused a stir on the internet. Shiba Inu and Dogecoin are two of the most used meme tokens, and they’ve had their popularity only for short periods. These coins don’t have that much value, but they’re closely tied to pop culture and the internet, so they’re precious in a sense that’s far from financial.
But unlike meme coins, which are tied to a concept, many of the cryptocurrencies on the market are similar. Although the initial projects were quite profitable, they didn’t reach a specific market capitalization and just got lost in the vast ecosystem.
Indeed, it’s difficult for a digital asset to be as useful as Bitcoin. It was the first token created and withstood numerous challenges over the years. At the same time, it’s a reliable store of value, and since it’s seen as a commodity, it can get regulated and introduced to the mass population more easily now.
But what makes a cryptocurrency valuable?
There are many aspects to consider when creating a new token. Indeed, it can be valuable from the start since it’s a scarce asset, but that’s not enough to make investors believe in its potential.
There are five aspects of a digital asset that make it worth the investment:
- It’s fungible, so its currency unit can be correlated to a similar one for setting a standard;
- It’s durable, meaning it can be invested for future usage;
- It’s portable, so it can be moved easily from one wallet to another;
- It’s easy to recognize, so the brand behind it marketed it well;
- It’s stable, so prices don’t shift dramatically;
Generally speaking, cryptocurrencies become valuable if users provide them through the simple rule of supply and demand. That’s why Bitcoin, whose maximum coin supply is getting close to an end, is more in demand by the year, while Ethereum, which has an unlimited coin supply, has a lower demand index.
But the rule doesn’t always apply to any cryptocurrency. Others, like the meme tokens, are demanded only briefly before becoming the hit of the market. In these cases, prices spike considerably during a limited period, and then they go down drastically for the rest of the year. Hence, when a team of developers decide to make a new cryptocurrency, they must consider its fame and usability in the long term and give less importance to offering mass tokens just to have an impact on the market.
Final considerations
Recently, it has been observed that the past three years showcased a serious decline in new issuance of tokens. Hence, the number of active cryptocurrencies is also decreasing. The situation might’ve been triggered by the 2022 crypto winter that led to less market liquidity. However, it also seems that users are looking for reliable and long-term investments rather than diversifying their portfolios with fun but less valuable assets.