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This is the biggest problem with Altcoins this cycle: Crypto Analyst
In a row on X, Miles Deutscher, a renowned figure in the crypto analytics industry, analyzed what he sees as a critical flaw in the current altcoin market. Addressing his large following, Deutscher elaborated on the impact of the rapid increase in the number of new crypto tokens, an issue he believes is at the heart of altcoins’ underperformance this cycle.
The proliferation of cryptocurrencies
Since April 2024, the cryptocurrency landscape has seen the introduction of over 1 million new crypto tokens, a notable half of which memecoins created primarily on the Solana network. According to Deutscher, the ease of implementing these tokens on-chain contributes to an inflated token count, but highlights a deeper problem of market saturation and dilution.
Deutscher explains: “We now have 5.7x the amount of crypto tokens compared to the 2021 bullish peak. This is one of the main reasons why cryptocurrencies have struggled this year, despite Bitcoin hitting new all-time highs.” He likens the excessive issuance of new tokens to inflation, where “the more tokens that are launched, the greater the cumulative supply pressure on the market.”
The analyst also sheds light on the dynamics of venture capital (VC) investments in the cryptocurrency sector, highlighting that the largest quarter for VC funding peaked at $12 billion in the first quarter of 2022, just as the market started to grow. become bearish. Deutscher criticizes the timing and strategy of VCs, suggesting that while their capital injection is essential for project development, it often leads to market imbalances.
“VCs, like retail investors, are opportunists. Their investment timing often aims to maximize returns rather than support the sustainable growth of projects, contributing to the market’s cyclical ups and downs,” explains Deutscher. He goes on to discuss the resulting market effects, whereby projects delay launch under unfavorable conditions, then flood the market when sentiment changes, worsening dilution.
The constant introduction of new tokens not only puts a strain on market liquidity, but also affects investor confidence, especially among retail investors. Deutscher points out: “The bias towards private markets is one of the biggest and most damaging problems for cryptocurrencies, especially when compared to other markets such as stocks and real estate.”
This environment creates a barrier to entry for new liquidity and leaves retail investors feeling sidelined, a feeling exacerbated by high-profile investors. failures like LUNA AND FTX. Deutscher argues: “If retail investors feel they can’t win, they won’t play the game, which is why memes have dominated this year: It’s the only place where retail feels it has a fighting chance.” .
Looking to the future, Deutscher proposes several strategies to mitigate these problems. Exchanges could enforce better token distribution standards and prioritize larger community allocations. Additionally, adjusting the percentage of tokens unlocked at launch could help manage selling pressure more effectively.
“Even if insiders don’t force change, the market eventually will,” says Deutscher. He suggests that exchanges should adopt rigorous standards for listing new projects and be equally rigorous in removing those that do not meet current criteria, thus preserving the integrity and liquidity of the market.
In his concluding remarks, Miles Deutscher hopes that his insights will foster better understanding and stimulate a reevaluation of current practices. “Dispersion is not the only problem, but it is certainly one of the most important and something that needs to be discussed more openly to promote a healthier crypto ecosystem.”
At the time of writing, Ethereum (ETH) was trading at $3,562.
Featured image from Shutterstock, chart from TradingView.com