Crypto analyst Miles Deutscher recently highlighted a “major fundamental flaw” that he believes is the primary reason behind altcoins’ underperformance in the current market cycle.
Deutscher detailed his findings in an X (formerly Twitter) thread on June 18. According to the analyst, the issue stems from the unprecedented amount of venture capital (VC) funding that poured into the crypto space in 2021 and recently flooded the market again.
However, the influx of VC funding also coincided with a significant increase in the number of new crypto projects. Deutscher pointed out that “the total crypto token count tripl[ed] between 2021-2022.”
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The bear market that followed saw many of these projects delay their launches. “Launching a project in the midst of a bear is a death sentence,” Deutscher explained. Consequently, when the market finally rebounded in Q4 2023, these delayed projects, along with many new ones, flooded the market.
Too many altcoins dilute retail’s attention
Deutscher’s report shows that “over 1 million new crypto tokens have been launched since April alone.” This massive influx of new tokens has led to what he calls “altcoin dispersion,” which he likens to inflation in the traditional economy.
“If you print more tokens, this, in turn, reduces crypto’s purchasing power relative to other currencies (like USD),” Deutscher stated.
He estimates that there is currently “around $150m-$200m of new supply pressure per day” due to token unlocks and new launches.
This constant sell pressure, combined with a lack of new liquidity entering the market, has led to the current situation where altcoins are severely underperforming compared to Bitcoin (BTC). Deutscher believes that addressing this issue will require changes from various players in the industry, including exchanges, project teams, and VCs.
‘Retail feels like they can’t win,’ says analyst
On another perspective, the analyst warns that retail is driving away from a market it cannot compete in.
“The skew towards private market is one of the biggest (and most damaging) issues in crypto, especially compared to other markets like equites and real estate. This skew becomes an issue because retail feels like they can’t win. And if they feel like they can’t win, they won’t play the game.”
This is because new projects usually launch with a $5 billion to $20 billion market cap, with little to no space for price discovery. Many of these projects arrive on the market overvalued, slowly draining capital as private investors gradually dump their locked tokens.
Despite the challenges, Deutscher remains optimistic about the future of the crypto market. He believes that “the market will always self correct and adjust” and that “a more retail-friendly market bodes well for everyone.”
Conversely, the recent market crash has seen crypto bulls losing nearly $400 million in long position liquidations, with over 165,000 traders getting ‘rekt.’ The market capitalization lost $136 billion in just one day, with altcoins being particularly hard hit.
While the current market conditions may seem bleak for altcoins, some analysts believe that opportunities still exist. For example, the trader Jelle argued that altcoins present a “golden opportunity once in a few years” for investors to “make a lot of money.” He believes that this opportunity is already starting to play out and urges traders not to get shaken out.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
