Cryptocurrency market will see crash and then consolidation, Ethereum co-founder says

  • A number of alternative cryptocurrencies have rallied substantially in recent weeks as investors look beyond the most prominent cryptocurrency bitcoin.
  • Ethereum co-founder Charles Hoskinson raised concern about "unrealistic" cryptocurrency projects entering the space.

The cryptocurrency market will strengthen after bitcoin alternatives that lack substance have failed, a former chief executive and co-founder of Ethereum said.

"My personal opinion is that we're going to see a consolidation after a crash," Charles Hoskinson told CNBC in an interview Friday. Hoskinson now runs blockchain research firm IOHK, but was previously in charge of Ethereum, which develops the underlying technology for the cryptocurrency ether (also known as ethereum).

A number of alternative cryptocurrencies — including Cardano, a cryptocurrency overseen by Hoskinson's company — have rallied substantially in recent weeks as investors look beyond the most prominent cryptocurrency bitcoin. Ripple's XRP, for instance, temporarily overtook ether as the second-largest cryptocurrency in December.

Blockchain, the technology that underpins cryptocurrencies, records all transactions of a digital currency on a dispersed network instead of one centralized server.

Meanwhile, a slew of lesser-known digital tokens have surged to unprecedented levels over the last few weeks, sending the total market capitalization of all virtual currencies up to three quarters of $1 trillion.

But Hoskinson raised concern about "unrealistic" cryptocurrency projects entering the space.

"What's going to occur is a lot of these ventures that don't have strong fundamentals, don't have good tech, or just unrealistic projects, they will eventually run into some major wall they can't quite overcome. They will fracture up and you will see a lot of them are certain to fail."

But the entrepreneur added that many of these cryptocurrency projects might not fail any time soon as they have enough funding behind them to sustain themselves.

"The problem is a lot of them have a lot of money," Hoskinson said. "It's really hard to fail when your burn rate is $5 million or $10 million a year, and you have $1 billion of capital."

On Sunday, dogecoin, a meme-inspired cryptocurrency that was introduced as a joke in 2013, saw its market value increase to $2 billion just days after hitting $1 billion. Meanwhile, dentacoin, a dental care-focused digital currency that dubs itself "the blockchain solution for the global dental industry," briefly surpassed $2 billion in market capitalization on Sunday, according to Coinmarketcap data.

Dogecoin's founder Jackson Palmer said Friday that it was concerning that the virtual coin he helped create had reached such a high valuation despite the fact that the project hasn't released a software update in more than two years.

"I have a lot of faith in the Dogecoin Core development team to keep the software stable and secure, but I think it says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn't released a software update in over two years has $1 billion market," he said on Twitter.

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