- Meme coins have garnered considerable attention recently, especially among new investors, leading to potential misconceptions about altcoins.
- Many believe that these meme coins will continuously surge in value simply because they are new, which is often a misguided notion.
- According to experts, selectivity is crucial since approximately 95% of altcoins fail to survive the initial bear market phase.
Learn why the majority of altcoins flounder and discover the three exceptions that may defy the odds.
Why Do Most Altcoins Fail?
The altcoin market is saturated, with GeckoTerminal indicating the existence of 3.1 million tokens, most of which are meme coins. The actual number of crypto assets is closer to 25,000, and several factors contribute to their high failure rate.
Low Market Dominance and Fully Diluted Value
A frequently discussed issue on crypto forums is the concept of low market dominance and fully diluted value (FDV). This situation arises when artificial price increases are driven by small trades or manipulations by whales and market makers. While FDV might be high, the circulating supply remains low, causing inflated values that are unsustainable.
This phenomenon is often highlighted in monthly reports by platforms such as Altcoin Buzz, showcasing the regular unblocking of tokens. To avoid falling into such traps, investors should seek out coins with high market dominance and low FDV.
Product-Market Fit and Hype Cycles
Many altcoins falter due to a lack of genuine product-market fit, often relying on extensive marketing strategies to generate initial excitement. This cycle typically involves a launch announcement, hype-building, and reaching peak prices, followed by steep declines during market downturns. Very few altcoins manage to regain their former all-time highs.
To mitigate this risk, investors should focus on periods of market decline to make purchases and seek out coins that exhibit genuine market demand. Indicators of a good product-market fit include substantial revenue and protocol fees, rather than just hype.
By avoiding these two scenarios, investors are already well on their way to making sound decisions in the altcoin market.
Altcoins with Potential to Succeed
Some altcoins are considered exceptions to the prevailing trend of failure. According to analysts, Golem (GLM), Chainlink (LINK), and The Graph (GRT) have the potential to succeed as they circumvent the issues of low market dominance and product-market misalignment. However, thorough research is recommended before investing, due to the volatile nature of the crypto market.
Conclusion
In summary, while the allure of meme coins and initial market excitement can be tempting, investors must exercise caution and discernment. Understanding the pitfalls of low market dominance and the importance of true product-market fit can significantly enhance the chances of making successful investments in the altcoin space. Keep an eye on promising tokens like Golem, Chainlink, and The Graph, but always perform due diligence before making any investment decisions.
