Altcoins
This is the biggest problem with Altcoins this cycle: Crypto Analyst
In a thread on Speaking to his many followers, Deutscher explained the impact of the rapid increase in the number of new crypto tokens, an issue he believes is at the heart of altcoins’ underperformance during this cycle.
The proliferation of crypto
Since April 2024, the crypto landscape has witnessed the introduction of over a million new crypto tokens, with a notable half being memecoins created primarily on the Solana network. According to Deutscher, the ease of deploying these tokens on-chain contributes to an inflated number of tokens, but highlights a deeper problem of market saturation and dilution.
Deutscher elaborates: “We now have 5.7 times more crypto tokens than during the bullish peak of 2021. This is one of the main reasons why crypto has struggled this year, although Bitcoin has reached new all-time highs. He compares the excessive issuance of new tokens to inflation, where “the more tokens 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 crypto space, noting that the largest quarter of VC funding peaked at $12 billion in the first quarter of 2022, just when the market began to develop. become bearish. Deutscher criticizes the timing and strategy of venture capital firms, suggesting that while their injection of capital is essential to the development of projects, it often leads to imbalances in the market.
“Venture capital firms, like retail investors, are opportunists. Their investment timing is often aimed at maximizing returns rather than supporting sustainable project growth, thereby contributing to cyclical ups and downs in the market,” says Deutscher. He continues to discuss subsequent market effects, where projects delay launch under unfavorable conditions, only to eventually flood the market when sentiment reverses, thus worsening dilution.
The constant introduction of new tokens not only strains market liquidity but also affects investor confidence, especially retail investors. Deutscher points out: “The focus on private markets is one of the biggest and most damaging problems in crypto, especially compared to other markets like stocks and real estate. »
This environment creates a barrier to entry of new liquidity and leaves retail investors feeling marginalized, a feeling exacerbated by high-profile investors. failures like LUNA And FTX. Deutscher says: “If retail investors feel like they can’t win, they won’t play the game, which is why memes have dominated this year – it’s the only meta where retail feels like they can. have a fighting chance. »
Looking ahead, Deutscher suggests several strategies to mitigate these issues. 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 will eventually,” says Deutscher. It suggests that stock exchanges should adopt rigorous standards for listing new projects and be equally strict in delisting those that do not meet existing criteria, thereby preserving the integrity and liquidity of the market.
In his closing speech, Miles Deutscher hopes his ideas will promote greater understanding and prompt a re-evaluation of current practices. “Dispersion is not the only problem, but it is certainly a major problem and something that needs to be discussed more openly to foster a healthier crypto ecosystem.”
At press time, Ethereum (ETH) was trading at $3,562.
Featured image from Shutterstock, chart from TradingView.com