Market Veteran Unveils What’s Behind Recent Downturn as Altcoins Lose $137 Billion

Renowned analyst Mike Deutscher has identified altcoin dispersion as a major factor behind the current downtrend, with the top 125 altcoins losing $137 billion in valuation.

The cryptocurrency market is currently experiencing a significant slowdown, with the value of Bitcoin plunging to $65,000. This decline had a profound effect on altcoins.

Notably, the data indicates that the market valuation of the top 125 altcoins (TOTAL2) fell by $137 billion, from $1.185 trillion on June 5 to $1.048 trillion. Amid this turmoil, Mike Deutscher, a veteran market analyst, provided an explanation for the causes of this downward spiral in a recent article on X.

Altcoin Dispersion a Major Factor Behind the Current Downtrend

According to Deutscher, a significant problem in the crypto market is the main reason for the underperformance of altcoins in the current market cycle. He identified this flaw as a concept dubbed “altcoin dispersion.”

In his commentary, Deutscher reflected on the state of the market in 2021. During this period, the market thrived on an influx of new liquidity, primarily driven by retail investors. Bullish sentiment was at its peak and venture capitalist (Venture capital firms) have responded by investing unprecedented amounts in the crypto space.

Venture capitalists typically invest early in projects, often six months to two years before launch, at lower valuations. This investment helps fund project development, with these venture capital firms providing additional support services.

The first quarter of 2022 marked the highest quarter on record for venture capital funding, with $12 billion invested, coinciding with the start of the bear market. This influx of capital has led to a wave of new projects, leading to a three-fold increase in the total number of crypto tokens between 2021 and 2022.

However, the market soon faced a series of catastrophic events, starting with the collapse of LUNA and culminating in the fall of FTX. These events severely impacted the market, prompting projects that had previously raised funds to delay their launch.

Entering a bear market, characterized by low liquidity and poor confidence, was considered a recipe for failure. As a result, many projects have postponed their launch, awaiting more favorable conditions.

A flood of new Altcoins

By the fourth quarter of 2023, market conditions had improved, causing a wave of delayed project launches. This trend has continued through 2024, with an unprecedented number of new tokens entering the market.

German stress that over a million new crypto assets have been introduced since April, with half of them being meme pieces on Solana. Even excluding small meme coins, the number of new tokens is staggering. CoinMarketCap currently tracks over 2.4 million crypto assets.

The flood of new tokens has led to significant supply pressure on the market. This pressure “builds up” over time, with projects from previous years still unlocking their tokens.

An estimated $150 million to $200 million in additional supply pressure per day. This persistent selling pressure, similar to inflation, reduces the purchasing power of cryptocurrencies.

German disputed that the crypto market’s version of inflation, driven by altcoin dispersion, is exacerbating the current downturn. This is due to the high frequency of the launch of new crypto assets, as well as the decrease in new liquidity injected into the market.

Additionally, many new tokens have low fully diluted valuations (FDV) and high float mechanisms, contributing to market instability.

Proposed solution

To solve these problems, Deutscher suggested several measures. He demands Exchanges to ensure there is a better token distribution mechanism and for project teams to prioritize community allocations with larger pools for real users.

He also recommended unlocking a higher percentage of tokens at launch, possibly implementing measures such as tiered sales taxes to discourage dumping.

Additionally, the analyst highlighted the need for a more retail investor-friendly market to encourage participation. He suggested that exchanges be more pragmatic, balancing new listings with delisting inactive projects to free up valuable liquidity.

Ultimately, a more inclusive market benefits all stakeholders, including exchanges, venture capital firms, and crypto projects.

Disclaimer: This content is informational and should not be considered financial advice. The opinions expressed in this article may include the personal opinions of the author and do not reflect the opinions of The Crypto Basic. Readers are encouraged to conduct thorough research before making any investment decisions. Crypto Basic is not responsible for any financial losses.

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