Crypto analyst Miles Deutscher highlighted a fundamental flaw causing altcoins to underperform this cycle, despite Bitcoin BTC/USD more than doubling in value from its 2023 lows.
What Happened: In a detailed thread on X, Deutscher identified altcoin dispersion as a critical issue affecting the crypto market.
Deutscher took a look back at 2021. The crypto market was booming at the time. Fresh retail liquidity was pouring in. This influx attracted massive venture capital (VC) investments, with the first-quarter of 2022 witnessing an unprecedented $12 billion in VC funding—right before the market turned bearish.
This “natural capitalistic response” from VCs led to a huge number of new projects being created, with the total crypto token count tripling between 2021 and 2022.
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Why Altcoins Are Struggling In 2024
The subsequent market downturn led many projects to delay their launches, waiting for better conditions. By the fourth quarter of 2023, these projects began launching en masse, contributing to an oversupply of tokens.
Deutscher cited data showing over 1 million new crypto tokens launched since April 2024. These are contributing to around $200 million of new supply pressure per day, similar to inflation in traditional currencies.
The flood of new tokens, coupled with insufficient new liquidity, created a bearish environment.
“Not enough new liquidity [is] entering the market,” Deutscher said. Existing tokens bleed value due to ongoing unlocks and high fully diluted valuations (FDV), he added. This situation makes it difficult for retail investors to achieve significant returns, as most price discovery happens in private markets, leaving little room for growth post-launch.
Can Altcoins Bounce Back?
Deutscher suggested several measures to address this issue:
- Better Token Distribution by exchanges.
- Community Allocations from project teams to engage genuine users.
- Higher Initial Unlock Percentages to mitigate extended sell pressure.
He emphasized that for the market to attract retail investors again, it needs to be more accommodating and straightforward. Additionally, he called for exchanges to be more selective with listings and delist non-performing tokens to free up liquidity.
Why It Matters: 10x Research highlighted that the poor performance of altcoins is due to a market-wide downturn, which has sucked capital out of riskier altcoin investments.
The ongoing high dilution of altcoins has been a persistent problem for digital asset investors. There is no consensus on whether this is a temporary phenomenon or a new equilibrium.
What’s Next: The relationship between altcoins and Bitcoin is expected to be thoroughly explored at Benzinga’s upcoming Future of Digital Assets event on Nov. 19.
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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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