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233 Million Reasons Bitcoin And A Few Other Digital Currencies Will Win Survival Of The Fittest

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There are over 1,500 digital currencies, per coinmarketcap.com, with Bitcoin having the largest market cap at $200 billion. Ethereum, Ripple, Bitcoin Cash and Litecoin have market caps starting at $85 billion and dropping to $12 billion. The next 20 have market caps that are over $1 billion with the next 115 over $100 million. About half of the remaining digital currencies have market caps under $1 million. While having a larger market cap doesn’t mean a particular digital currency will become established, it certainly helps to give it credibility.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Some of the challenges to digital currencies being accepted are the relative newness of them, the ease that additional ones can be created and the total number of them. The SEC has warned investors about fraudulent ones and over $200 million seems to have disappeared from hundreds of recent Initial Coin Offerings, or ICOs. This could lead to the entire digital currency ecosystem fading away or it may mean that investors and companies will settle on a few of the strongest ones. It is too early to tell what will eventually happen, but given the money being invested in them and their potential use I would lean to the survival of the fittest playing out.

Almost half of 2017’s ICOs have failed

In my article “12 Reasons Bitcoin Could Fall Below $1,000,” fraudulent ICOs was one of them. News.Bitcoin.com performed an analysis of 2017’s Initial Coin Offerings. It utilized tokendata.io information and of the 902 ICOs it found “142 failed at the funding stage and a further 276 have since failed, either due to taking the money and running, or slowly fading into obscurity. This means that 46% of last year’s ICOs have already failed. ” They had raised over $104 million ranging from a couple of thousand dollars to a handful over $10 million. Those funds have essentially disappeared.

News.Bitcoin.com did some additional digging and found another 113 ICOs “can be classified as “semi-failed,” either because their team has stopped communicating on social media, or because their community is so small as to mean the project has no chance of success.” This would make for a total of 59% of last year’s ICOs being either failures or “failures-in-the-making.” These 113 ICOs had raised $129 million, which could also evaporate into the ether.  The total amount of money that seems be lost due to failed ICOs is $233 million.

Bitcoin has been relatively stable the past two weeks

Besides having the largest market cap, Bitcoin also does the largest amount of trading volume on a daily basis. Its price has been between $9,500 and $11,500 the past two weeks. While this is still a wide range, it is better than the drop from $20,000 last December to $6,000 in early February. It will need to become very stable for it to be widely accepted, but this may be a start.

Slowly gaining acceptance by companies

Besides being the poster child for cryptocurrencies, Bitcoin has also gained a level of acceptance with companies. The CBOE or Chicago Board Options Exchange and the CME Group started to make a market in Bitcoin options last December. Fidelity announced that besides making small investments in cryptocurrency companies it also had a small mining operation. When you add reports that Goldman Sachs could start trading cryptocurrencies, it makes investors feel more comfortable committing capital and create demand. These large financial institutions wouldn’t be putting resources and people into cryptocurrencies if they didn’t feel they weren’t viable.

Square allowed its merchant customers to accept Bitcoin starting in 2014 so it has been involved with cryptocurrencies for over three years. It announced on November 15 last year that it would experiment allowing some users to purchase Bitcoin. On the company’s December quarter results conference call, Jack Dorsey, Square’s CEO, said, "Bitcoin for us is not stopping at buying and selling. We do believe that this is a transformational technology for our industry and we're going to learn as quickly as possible. We also believe that it does provide an opportunity to get more people access to the financial system.”

However, even large companies are still trying to implement digital currency applications correctly. On Friday, February 16, Visa and Worldpay issued a joint statement that said, “Over the last two days, some customers who used a credit or debit card at Coinbase may have seen duplicate transactions posted to their cardholder accounts.” The statement also added, “This issue was not caused by Coinbase.”

The network effect should work to Bitcoin’s benefit

It is these types of companies committing themselves to utilize Bitcoin that will make it and other digital currencies viable in the long run. Managements make these types of investments knowing that it will be multiple years to determine what the applications could be and the eventual benefit. They will only support a handful of them as the companies have a limited amount of people and money that they can spend on leading edge projects.

The network effect will benefit Bitcoin and some other digital currencies. Companies will shy away from working with newer ones, and seeing hundreds of them essentially disappear will further reinforce their use of Bitcoin and a few others. As more companies commit to using specific cryptocurrencies other companies will be more willing to commit to them. This should build on itself until the lesser known cryptocurrencies fall by the wayside.

Please feel free to check out my other Forbes articles “9 Reasons Bitcoin Could Hit $100,000 Or More," “12 Reasons Bitcoin Could Fall Below $1,000” and “Could Cryptocurrencies Imploding Tank The Stock Markets?