Altcoins
Altcoin investors face seasonal trends and liquidity concerns
The three key points from the TDR regarding Altcoin investors and liquidity concerns:
- The challenges facing altcoin investors are growing despite the relative stability of Bitcoin (BTC) and Ethereum (ETH).
- Altcoins face constant dilution as new tokens are launched into the market.
- In the first quarter of 2022, venture capital funds invested $13 billion in a bear market and now face pressure from investors to return their capital as AI gains popularity.
The challenges facing altcoin investors are growing, despite the relative stability of Bitcoin (BTC) and Ethereum (ETH). Top altcoins like Solana (SOL) and Avalanche (AVAX) saw their prices drop by 40% to 70%, due to selling pressure from venture funds, heavy dilution from token unlocks, and lack of new inflows of capital. Seasonal trends also play an important role, with June historically being a down month for altcoins.
The overall market capitalization and trading volumes across crypto markets reflect a grim reality for altcoin investors. Unlike Bitcoin and Ethereum, which have shown resilience, altcoins face serious liquidity issues. This liquidity crisis is exacerbated by the actions of venture capital funds. These funds, which invested heavily during the bull run of 2021 and early 2022, are now selling tokens for profits, adding downward pressure on already struggling altcoins. Quinn Thomson, founder of crypto hedge fund Lekker Capital, noted in an article the opposite: a constant flow of selling pressure. .”
One of the main factors behind the price decline is the high dilution due to the unlocking of tokens. Altcoins face constant dilution as new tokens are launched into the market. This influx of new tokens dilutes the value of existing holdings, making it more difficult for prices to recover. Newly launched tokens like Wormhole (W) and Starknet (STRK) have seen significant price drops and are expected to face continued dilution, worsening bearish sentiment in the market.
The market capitalization of stablecoins has also stagnated, indicating reduced liquidity across the board. Stablecoins are often considered a measure of the liquidity available in crypto markets. A stagnant or declining market capitalization for stablecoins suggests that there is less capital available to invest in other crypto assets, including altcoins. This lack of new capital inflows puts additional pressure on altcoin prices.
Seasonal trends contribute to current market dynamics. June has always been a down month for altcoins, and this year is no exception. The combination of seasonal trends, selling pressure from venture capital funds, and high dilution rates creates a challenging environment for altcoin investors. Markus Thielen, founder of 10x Research, highlighted the broader context in a report released last week: “Venture funds invested $13 billion in the first quarter of 2022, as the market transformed into a heavily bearish. These funds are now under pressure from their investors to return their capital as artificial intelligence (AI) has become an increasingly hot topic. Want to stay informed on cannabis, AI, small caps and crypto? Subscribe to our daily Baked in newsletter!