Iagree, the instability is what will kill the sector. However, it seems most of the recent instability is due to the questions surrounding the looming regulations in China.
For arguments sake (i like to debate :) ) one could say most of the instability is just due to the immaturity of the sector as a whole, and even more so the community that has joined over the last few months. The sector has become bloated and frothy, with new cyrrencies popping up out of nowhere, and new investors betting on speculation.
Perhaps as the community matures and the sector settles down a bit, things will stabilize. Now, when will this happen? Will the same cryptos (Bitcoin, Litecoin), still be the frontrunners? I have no idea :o) what do you think?