Altcoins
This is why Altcoin investors are struggling despite Bitcoin and Ether near yearly highs
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Crypto majors such as SOL, AVAX, APT, SUI have seen corrections of 40-70% over the past few months, weighing on altcoin sentiment, while BTC and ETH are down only 15%. % compared to their annual peaks.
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Venture capital funds are under pressure to sell tokens to make a profit on their investments made over the past few years, noted Markus Thielen.
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The lack of capital inflow into crypto markets “has particularly harmful implications for tokens with large upcoming unlocks as well as new [tokens] and airdrop programs,” said Anagram partner David Shuttleworth.
The cryptocurrency market is seeing a healthy consolidation after a massive rise from October to March – at least for those invested in the two largest digital assets.
However, for those holding smaller cryptocurrencies, this is a sharp correction, with the sentiment in crypto social media circles resembling the despair of a bear market.
While bitcoin {{BTC}} and Ethereum ether {{ETH}} are only 15% below their yearly highs, several crypto majors like solana {{SOL}} and avalanche {{AVAX) }} are down 40% to 50% from their March peak, while layer 1 challengers sui {{SUI}} and aptos {{APT}} are up 60% to 70%.
Good advice for pure, very long-term investors, but I run both trading and venture books.
I believe the cycle is over for 99% of alts,
Keep what makes sense for multi-year/decade investments
– Andrew Kang (@Rewkang) June 21, 2024
Selling pressure from venture funds with the widening supply of unlocked tokens, lack of new flows into crypto, and seasonal trends have all contributed to weakness in altcoins, a term used to describe cryptocurrencies beyond the larger ones like bitcoin and ether.
High dilution
Many altcoins are experiencing a constantly diluting token supply via unlocks and distributions scheduled for years to come. Indeed, most tokens are locked, purchased by early investors or intended for ecosystem development and grants.
For example, the Ethereum layer 2 network Arbitrum token {{ARB}} is approaching its all-time low price from last September, even though its market capitalization has increased from $1 billion to $2.5 billion. dollars due to a massive increase in its supply.
Another example is Solana, whose supply increases every day by 75,000 tokens, worth around $10 million at current prices.
“Unlike stocks that experience constant passive supply from ETF inflows and bond buybacks, crypto, and especially altcoins, have the opposite: a constant flow of selling pressure,” Quinn Thomson, founder of crypto hedge fund Lekker Capital, note in an X post.
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A significant portion of the selling pressure comes from venture capital funds making profits on their first investments in projects launched in recent years.
“Venture funds invested $13 billion in the first quarter of 2022 as the market transitioned into a sharply bear market,” Markus Thielen, founder of 10x Research, said in a report earlier this week. “These funds are now under pressure from their investors to return their capital as artificial intelligence (AI) has become a hotter topic.”
When market appetite for smaller, more speculative crypto assets wanes and trading volumes decline – as in recent months – there is not enough demand to absorb this supply shock.
Lack of new influxes
Liquidity inflows into cryptocurrency markets have also stagnated or even reversed in recent weeks, as shown by the market value of stablecoins, which are primarily used as an intermediary for cryptocurrency trading.
The combined market capitalization of the four largest stablecoins – Tether’s USDT, Circle’s USDC, First Digital’s FDUSD and Maker’s DAI – has been stable since April after a $30 billion expansion earlier this year , according to TradingView data.
Combined market capitalization of USDT, USDC, FDUSD and DAI (TradingView)
Stablecoin balances on exchanges – which translates into dry powder for traders and investors – fell by $4 billion to their lowest level since February, David Shuttleworth, partner at Anagram, pointed out in a statement. Message citing Nansen’s data.
“This has particularly harmful implications for tokens with large upcoming unlocks as well as new [tokens] and parachute programs,” Shuttleworth said.
Recently launched tokens of blockchain bridge Wormhole (W), synthetic yield dollar protocol Ethena (ENA), and layer 2 network Starknet {{STRK}} have all fallen approximately 60% to 70% from their respective summits and will face billions. dollars of tokens distributed in the years to come.
Seasonal trends have also been bearish for smaller tokens, with June typically being a down month for altcoins.
TradingView data shows that the aggregate market cap of crypto assets excluding BTC and ETH, captured by TOTAL.3 metric, has seen a decline every June for the past six years.
This month is poised to be no exception, with TOTAL.3 down 11% year to date.