Monday, May 16

Irrelevant Cryptocurrency Projects Will Soon Disappear, Study Finds

Key facts:
  • Preference for Bitcoin-based products, such as ETFs, fell markedly in 2021.

  • Bitcoin has lost market dominance spaces against other assets, but it is still a leader.

A cleanup of non-transcendental cryptocurrency projects, such as those based on memes or some non-fungible tokens (NFTs), would be close.

This is what the blockchain analysis firm CryptoCompare maintains, in its most recent report entitled “Market Dynamics and Evolving Trends”.

as is known, Bitcoin is in its fourth halving cycle, a period in which miners’ rewards are halved. Interestingly, during the third (2016-2020), many “manias and speculations” arose: it was the case of Initial Coin Offerings (ICO).


It is to be remembered that, at that time, these projects were very popular among investors. Disbursements reached USD 7.8 billion in 2018, before falling precipitously to USD 371 million, CryptoCompare recalls.

Now, two years after Bitcoin’s fourth halving closes, there is a new “mania.” These are the projects related to DeFi, NFT and meme coins. Here’s what’s interesting: according to the company, many of them will disappear and only the most popular will survive.

The 10 most important cryptocurrencies in the market during 2021, according to CryptoCompare. / Fountain: CryptoCompare.

“While the most popular of these projects are likely to survive, it is more than likely that many of these, which provide no additional utility to buyers, will capitulate, along with other cryptocurrency projects that do not add value to the ecosystem,” he says. the signature.

NFT and its lack of usefulness

In the same narrative, CryptoCompare warns against NFTs. According to the company, many of these projects would fail in an eventual market crash, due to the “significant challenges” facing this technology, such as lack of usability by owners.

Many projects aim to change this by adding services like NFT staking, or using NFT as an exclusive club membership entry, but such ‘utility’ are often approaches taken from competing projects, and they do not guarantee the significant amount of money spent by buyers.

CryptoCompare, blockchain analysis firm.

Top 10 NFT collections of 2021 by sales volume. / Fountain: CryptoCompare.

And, as if that were not enough, they criticize that money laundering and market manipulation, are crimes that proliferate in NFTs. “So it’s no wonder that collectible tokens are a winner-take-all market.”

In the end, they warn that the NFT market “is one of the most prone to manipulation and is arguably the riskiest area of ​​cryptocurrencies”, despite the fact that, during 2021, these tokens flooded all industries. “Market participants should tread carefully in this space,” they recommend.

Bitcoin Lost Dominance Spaces, “But It’s Still King”

On the other hand, the CryptoCompare report shows that bitcoin has lost dominance in the cryptocurrency market, in part, due to the growth of other assets and projects. However, and despite the drop, it still remains the absolute leader of the ecosystem.

According to the firm, BTC significantly lost its dominance in 2021, compared to 2020. In figures, Bitcoin dominated 70.98% during the first year of the COVID-19 pandemic. But, 12 months later, that dominance fell to 39.79%. A decrease of 44%, approximately.

The new projects that expand the use cases of cryptocurrencies, led the decline of bitcoin dominance in a matter of a year. These projects are those related to Ethereum (ETH) and decentralized finance (DeFi). This, in addition to other minor cryptocurrencies, such as Solana (SOL), Binance Coin (BNB), and Tether (USDT), whose market dominance grew.

For the company, these new initiatives “have taken the shine off Bitcoin” and now the ecosystem “has a plethora of promising projects that can attract new investment away from Bitcoin.”

Bitcoin dominance fell 78% from 2020 to 2021, according to data from CryptoCompare / Source: CryptoCompare.

The trend of less dominance has been extrapolated to institutional investors. According to CryptoCompare, “they are shifting their attention to other cryptocurrencies.” This is the case of products that are based on Bitcoin, such as Exchange Traded Funds (ETF), whose preference fell notably during 2021: from 74.9% in January, to 67.8% in December.

Therefore, the firm says, investors will closely follow bitcoin price movements during the first quarter of this 2022, “to assess whether the bull market is still in full force or whether the cycle has ended, putting us in a bear market.”

Regardless of your point of view, it’s critical that investors have a planned exit strategy for when volatility hits, whether it’s upside (how and when to take profits) or downside (limiting losses through risk budgeting, position limits or stop-loss limits).

CryptoCompare, blockchain analysis firm.

What CryptoCompare shows makes sense considering that, according to recent CoinMarketCap data, bitcoin dominance was falling in 2021. That graphic firm showed a decrease of 67.5% in January, to 40.2% on December 31.

But, and as reported by CriptoNoticias, the fall in dominance responded to a significant expansion of the ecosystem, which at the end of 2021 had a total market capitalization of USD 2 trillion 248 billion.

It is true that investments in other projects have grown, especially for those who are new to the market, but the data from this firm is clear: there is a risk of losing money. Therefore, it would be better to stay with an already consolidated asset, such as bitcoin..