The mood in cryptocurrency markets is increasingly being compared to the craze for dotcom companies at the turn of the century, as valuations reach new highs.
Companies without a business model and with multi-million dollar valuations went bankrupt when the mania subsided.
Cryptocurrency markets are in a similar situation. The overwhelming majority of the 1,385 coins currently available in the markets are unknown, but they are still being bid up to multi-billion dollar valuations.
As of this writing, Dogecoin, a cryptocurrency created as a parody of the bitcoin boom, has a market capitalization of $1.6 billion. The coin’s value is justified by the lack of a clearly defined use case or characteristic.
According to Nolan Bauerle, research director at CoinDesk, 90 percent of today’s cryptocurrencies will not survive a market crash. Those who survive will have the upper hand in the game, boosting returns for early investors. And, if RBC Capital’s estimate of a future $10 trillion market for cryptocurrencies is correct, those returns are substantial.
However, identifying survivors in the cryptocurrency markets is more difficult than it appears. No single currency has achieved or is even close to achieving mainstream acceptance.
Even bitcoin, the most valuable and widely used cryptocurrency in the world, suffers from scaling issues such as high transaction fees and slow networks.
Which cryptocurrencies will survive?
The top 20 most-traded cryptocurrencies are a good place to start. If and when the cryptocurrency markets crash, it will be relatively easy to identify some notable survivors in this list. Bitcoin is the first cryptocurrency and is quickly gaining popularity as a store of value.
Offshoots such as Litecoin and Bitcoin Cash were born from its blockchain and codebase. Both are vying to be the most popular cryptocurrency for everyday transactions.
Ethereum’s world of decentralized applications, or Dapps, is quickly gaining traction, and it’s responsible for a slew of tokens built on its platform, including Populous.
Others, such as Dash, have staked similar claims and carved out niches in both emerging and developed markets, such as Zimbabwe and Spain.
NEO has the potential to be a dark horse. It’s geared toward the smart economy, and it’s collaborating with the Chinese government to expand the country’s cryptocurrency ecosystem. It has also collaborated with the Japanese Ministry of Economy and announced a strategic partnership with Microsoft China.
Moving down the list, however, reveals cryptocurrencies that require a higher level of risk tolerance from investors. TRON, for example, a cryptocurrency that has recently risen in popularity, lacks a product and has an inexperienced founder.
Request Network, meanwhile, claims to be the future of commerce, but that vision was recently shifted from one of an online money transfer aggregation service. The white paper for the cryptocurrency mentions a variety of applications for its coin, ranging from the Internet of Things to online payments and implementing business logic for government laws.
However, in terms of partnerships or experience in those areas, the startup has very little to show.