The cryptocurrency market, despite its recent surge in popularity, has witnessed a significant number of project failures, particularly those launched during bull runs. This raises concerns about the long-term viability of certain projects and highlights the importance of conducting thorough research before investing in cryptocurrencies.
Cardano and Terra Lead the Pack in Project Closures
A recent report by AlphaQuest revealed that the Cardano (ADA) and Terra may have the highest rates of project failures. This implies that a significant portion of projects built on these specific Blockchains have ceased operations and are considered dead coins.
Dead Coins- What Makes a Project Fail?
The study defines a dead coin as a cryptocurrency project displaying several characteristics that indicate a lack of viability and potential abandonment. These characteristics include:
- Low trading volume and liquidity- This indicates a lack of interest and activity in the project, making it difficult or impossible to buy or sell coins. Essentially, the market for the cryptocurrency dries up.
- Inactive or deleted social media accounts– Such inactivity suggests a lack of communication from the project team, possibly indicating a lack of development or an abandoned project altogether.
- Non-functional website- An inaccessible website raises red flags about the legitimacy and continued development of the project. If users cannot access information about the project, it raises concerns about transparency and potential scams.
- Delisting from aggregators– Removal from platforms like CoinMarketCap, which track and list cryptocurrencies, further indicates a lack of market presence and potential issues with the project, such as low trading activity or regulatory concerns.
Factors behind the High Failure Rates
Multiple factors contribute to the high failure rate among crypto projects:
- The Bull Run frenzy- The 2020-2021 Bull Run witnessed a surge in new cryptocurrency launches, frequently characterized by a rapid increase in the value of existing projects. This led to an influx of new projects, many lacking a solid foundation or clear purpose. Often categorized as meme coins with limited utility, these projects often struggle to maintain momentum and eventually fizzle out.
- Simplified token creation- During the Bull Run, the ease of creating tokens contributed to the saturation of the market with low-quality projects. This gold rush mentality led to the creation of many projects without a clear purpose or sustainable business model, which increased the chances of failure.
- Lack of due diligence– Investors excited by the hype surrounding the market might neglect essential research and due diligence before investing. This lack of careful evaluation can make them susceptible to scams and unsustainable projects, ultimately leading to project failures.
Signs of Improvement- Lower Failure Rates in Recent Years
While the overall failure rate remains high, the AlphaQuest report also highlights a positive trend. The year 2023 saw a significant reduction in project closures compared to previous years, suggesting an improvement in project quality and sustainability. This reflects a maturing crypto market with a focus on building more robust and viable projects with a clear purpose and long-term vision.
Dogecoin- A Case Study
Interestingly, Dogecoin (DOGE), the meme-based cryptocurrency, stands out as a success story amidst the high failure rates. Despite lacking a fundamental use case beyond being a meme coin, the project has managed to maintain its presence and value. This case study shows the unpredictable nature of the crypto market and the potential for unexpected success stories, even amidst a landscape of project failures.
The high failure rate in the cryptocurrency market suggests the importance of conducting thorough research and exercising caution before investing in any project. While the recent drop in failures suggests an improvement in project quality, it is vital to remain vigilant and understand the inherent risks involved.
Celine Brooks is a renowned journalist and author specializing in cryptocurrency and blockchain technology. She holds a Master’s degree in Economics from Harvard University and is very passionate about Crypto. Celine regularly hosts webinars and workshops, sharing her insights and forecasts about the evolving digital currency landscape. She is also an active contributor to several leading financial and tech publications, where she breaks down complex crypto trends into understandable insights for everyday investors.