As cryptocurrencies continue to surge in popularity, a pressing issue has emerged that both challenges and threatens the very foundation of the digital asset market – the loss of rarity. With an overwhelming array of luxury watch advertisements crowding the pages of a financial newspaper, one can’t help but question the true value and rarity of these high-end items. Similar traits are found in today’s cryptocurrency scene, where tokenomics play a significant role in helping to determine the value of digital currencies.
A good example of how rarity serves as a value proposition in the cryptocurrency sphere can be seen in Bitcoin (BTC), which has a limited maximum supply of 21 million coins. This scarcity lends an inherent value to the digital currency. In contrast, other cryptocurrencies might have astronomical maximum supply figures, which can deter investors by diluting their rarity value.
Roughly 250 centralized exchanges (CEXs) are currently trading cryptocurrencies, boasting a total market cap of $1.24 trillion. The ten largest currencies make up $1 trillion of the market cap, leaving the remaining $240 billion to be shared amongst 22,922 coins. This significant concentration at the top suggests an imbalance, as the thousands of altcoins available lack mass adoption and, consequently, hold limited to no utility or value.
Creating new cryptocurrencies is encouraged, but there needs to be a healthy focus on utility and maximum supply. Investors must also consider factors like total supply, circulating supply, and maximum supply when assessing price discovery and volatility. The proper economic evaluation of projects is essential to ensure cryptocurrencies maintain their differentiation and position as alternatives to fiat currencies.
To address the diminishing rarity in the cryptocurrency market, an industry-wide trade-off is necessary. Collaboration between CEXs and individual projects could help bring about change by delisting underperforming projects and carefully monitoring the plans of those that remain.
Two scenarios can potentially change the course of the crypto market. The first addresses the potential loss of trust in an economy, sovereign indebtedness, or financial stability, where cryptocurrencies thrive as alternatives to fiat currencies. The second, more futuristic scenario, rests upon the integration of cryptocurrencies and Web3, supporting an ecosystem that demands a more streamlined number of digital assets.
With so many cryptocurrencies in circulation, there is an undoubtable loss of rarity from a value proposition perspective. To truly bring about change, an industry-wide initiative must be taken to reduce excess supply and increase quality. Time will tell whether the world needs 10,000 cryptocurrencies, but one thing is clear – change is needed to protect the integrity of the market.
Source: Cryptonews
