Why Wont the Season of Altcoins Arrive Decentralization of Altcoins Hidden Threats to the Cryptocurrency Market
A significant flaw is emerging in the cryptocurrency market, threatening the stability and growth of the crypto market. According to cryptocurrency analyst Miles Deutscher, the issue is the poor performance of altcoins in the current cycle, with no immediate solution in sight.
Understanding the Cycle: The Rise and Fall of Bull Markets
2021: The Market Frenzy
The Role of Venture Capitalists
Explosive Growth of Cryptocurrency Tokens
Unprecedented Influx of New Tokens
Token Dilution: Constant Currency Inflation
Supply Pressure and Market Impact
High FDV and Low Circulation Creating Issues
Solutions and the Path Forward
The Need for More Liquidity
Improvement Measures
The Role of Exchanges
Conclusion
Miles Deutscher noted that the highlight of the 2021 cryptocurrency market was the “influx of new liquidity,” primarily driven by retail investors from outside the crypto community. At that time, the bull market seemed unstoppable, and investors were willing to take risks. Venture capitalists (VCs) also poured an unprecedented amount of capital into startups and tokens, creating a thriving environment.
Miles Deutscher’s statistics show that venture capitalists made early investments at lower valuations in the 6 months to 2 years before project launch. Interestingly, the first quarter of 2022 saw the highest amount of VC funding, reaching $12 billion, coinciding with the beginning of the bear market.
According to Miles Deutscher, the combination of low barriers and high potential returns during the bull market led to a massive increase in new tokens. The total number of cryptocurrency tokens tripled from 2021 to 2022. However, the subsequent market downturn, along with events like the collapse of LUNA and FTX, caused many projects to delay their launch, waiting for better market conditions.
By the fourth quarter of 2023, improved market conditions led to a record number of new token launches in 2024. Since April, over 1 million new cryptocurrency tokens have been released, with a significant portion on the Solana network being meme coins.
Miles Deutscher stated that the influx of new tokens has created significant supply pressure in the market, estimated at approximately $150-200 million in new supply pressure per day. This constant selling pressure has a similar impact on the market as traditional currency inflation.
Many new tokens were released with low fully diluted valuations (FDV) and high circulation mechanisms, leading to continuous supply pressure and dispersion. As a result, the market faced the dilemma of dilution and insufficient new liquidity.
Miles Deutscher believes that the cryptocurrency market needs more liquidity to address this issue. However, the current trend of leaning towards the private market is causing damage and making retail investors feel deprived.
Several measures can help alleviate the problem:
– Exchanges strengthen token distribution management.
– Projects prioritize community distribution and provide larger pools for real users.
– Implementing a tiered selling tax to prevent dumping.
Miles Deutscher believes that even if industry insiders do not enforce change, the market will eventually force change on its own. Most current issues are short-sighted, and the market needs to give retail investors a reason to return, solving at least half of the problems.
He suggests that exchanges need to be more pragmatic, balancing new listings and delistings to clear out inactive projects and release valuable liquidity.
The dispersion issue of altcoins is a major challenge in the cryptocurrency market. Addressing this problem requires a market that is friendly to retail investors and pragmatic measures from exchanges and projects. Although the issue is complex, the market may self-correct over time. Creating a more balanced and sustainable ecosystem will benefit all stakeholders, from projects and venture capitalists to exchanges and retail investors.
