Many people think that because a certain cryptocurrency did well in the past, it is guaranteed to do well in the future. However, this is not always the case.
The cryptocurrency market is highly volatile and continuously evolving. Just because a coin was popular during one bull cycle, doesn’t mean it will continue to be popular (or even exist) during the next one.
Token Supply Would Dilute the Value of the Coin Over the Years
The primary factor that would prevent such a phenomenon from happening again would be dilution due to increasing token supply. Token supply can have a profound and long-lasting impact on the value of a coin similar to how inflation works with fiat money. As more tokens are added to the market, they contribute to an oversupply of coins, which tends to drive down their value.
For example, Bitcoin’s circulating supply has grown from an estimated 14.5 million in 2015 to around 19 million today. During this time, Bitcoin’s price fluctuated due to numerous external factors. However, if the market had not experienced such a drastic increase in total supply over those five years, its price may have been much higher over that period.
Similarly, Ethereum witnessed changes in token supply when Ethereum Classic (a new coin with a different supply) was created as a hard fork in 2016. This event drastically increased the circulating supply of Ethereum and drove down prices for some time as the market struggled to adapt.
Ultimately, changes in token supply should be carefully monitored by crypto investors so that they can make informed decisions regarding their investments.
Aside from dilution due to supply increase, other factors can also play part in the new peaks of coins. These include, but are not limited to:
1. The Overall Health of the Market
If the market is doing poorly due to low confidence on the part of investors, it is unlikely that any coins will reach new all-time highs. Future regulatory changes may also influence the decision of people to invest in crypto.
2. Technological Advancements
As the industry evolves, so do the needs and behaviors of investors and traders. This means that some coins which were popular in the past may no longer be relevant or useful in the present.
3. More Competition
As more and more cryptocurrencies are introduced into the market, they provide new options for investors and they can take away market share from older coins. Coins with more promising returns, better hype, and better reward systems including staking and/or pooling can further sway investors in their favor.
All of these factors together make it very difficult to predict which coins will succeed in the future and which ones will not. So, if you are thinking about investing in cryptocurrency, be sure to do your research and understand the risks involved.
Investing in crypto can be a great way to make money, but it is important to remember that there are risks that come with it, too, similar to other forms of investments.
Giancarlo is an economist and researcher by profession. Prior to his addition to Blockzeit’s dynamic team, he was handling several crypto projects for both the government and private sectors as a Project Manager for a consultancy firm.