Ethereum Co-founder Predicts Crypto Market Will See Crash Before Consolidation

Investors must think carefully about which cryptocurrency to back because a lot of them “are certain to fail,” an entrepreneur who helped develop Ethereum has warned.

In an interview with CNBC, Charles Hoskinson, who currently runs blockchain research firm IOHL, discussed how many investors have been buying alternative cryptocurrencies in recent weeks in the hope that they can mirror the success of bitcoin, the most prominent virtual currency. The co-founder and former CEO of Ethereum, an open software platform that helps to build digital coins, warned that many of these alternative cryptocurrency projects are unsustainable and destined to eventually crash once their many issues are exposed.

"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,” he said. “They will fracture up and you will see a lot of them are certain to fail." (See also: How the New Tax Law Impacts Cryptocurrencies)

However, Hoskinson, who predicted a period of consolidation after the crash, added that many of these projects won’t fail immediately because they have enough funding behind them to remain competitive for a while yet. "The problem is a lot of them have a lot of money," he 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."

Hoskinson made his comments after a slew of lesser-known digital tokens surged to unprecedented levels over the past few weeks. Rising investor interest in alternative cryptocurrencies pushed the total market capitalization of all virtual currencies up to three quarters of $1 trillion. (See also: Why Nvidia, AMD Aren't Including Bitcoin In Forecasts)

The cryptocurrencies behind this rally included Cardano, a virtual currency overseen by Hoskinson's company, dogecoin and dentacoin, a dental care-focused digital currency that has billed itself as "the blockchain solution for the global dental industry.” According to Coinmarketcap data, dentacoin briefly surpassed $2 billion in market capitalization on Sunday.

Dogecoin, a meme-inspired cryptocurrency that was introduced as a joke in 2013, also now has a market value of close to $2 billion. The near doubling of dogecoin’s market capitalization within the space of days even led its founder to express concerns that investors might have overreacted.

"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 a $1 billion market," said its founder Jackson Palmer, who left the team in 2015, to CoinDesk.