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This “major fundamental flaw” threatens to “kill cryptocurrencies,” says one analyst
Cryptographic analyst Miles Deutscher highlighted a fundamental flaw that nevertheless causes altcoins to have underperformed this cycle Bitcoin BTC/USD more than doubling the value from the lows of 2023.
What happened: In a detailed thread on XDeutscher has identified altcoin dispersion as a critical issue affecting the cryptocurrency market.
Deutscher took a look back at 2021. At the time, the cryptocurrency market was booming. New retail liquidity was flowing. This influx attracted massive venture capital (VC) investment, with the first quarter of 2022 seeing a record $12 billion in VC funding, right before the market turned bearish.
This “natural capitalist response” by VCs has led to the creation of a huge number of new projects, with the total number of crypto tokens tripling between 2021 and 2022.
Read also: Bitcoin Whales Dump Over $1 Billion in Shift to AI
Why Altcoins are Struggling in 2024
The subsequent market downturn led many projects to delay launch, 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 about $200 million of new supply pressure per day, similar to inflation in traditional currencies.
The surge of new tokens, coupled with insufficient new liquidity, has created a bearish environment.
“There is not enough new liquidity [is] enter the market,” Deutscher said. Existing tokens lose 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 the majority of price discovery occurs in private markets, leaving little room for growth after launch.
Can Altcoins Recover?
Deutscher suggested several measures to address this problem:
- Better token distribution through exchanges.
- Community assignments by project teams to engage authentic users.
- Higher initial unlock rates to mitigate prolonged selling pressure.
He stressed that for the market to attract retail investors again, it needs to be more accommodating and direct. Furthermore, he asked exchanges to be more selective with listings and remove non-performing tokens to free up liquidity.
Because matter: 10x Research highlighted that the poor performance of altcoins is due to a market-wide recession, which has sucked capital out of riskier investments in altcoins.
The ultimate in progress 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 explored in depth during Benzinga’s next conference The future of digital assets event on November 19th.
Read next: Is Barron Trump behind the new Trump-themed DJT Solana memecoin? Here’s what we know
This content was partially produced with the help of artificial intelligence tools and was reviewed and published by Benzinga editors.
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