Cryptocurrency analyst points out significant underlying issue leading to altcoins outperforming in current market cycle
Crypto analyst Miles Deutscher recently shed light on a significant flaw that he believes is the main cause of altcoins’ lackluster performance in the current market cycle.
In a detailed analysis shared on X (previously Twitter) on June 18, Deutscher pointed out that the issue originates from the excessive influx of venture capital (VC) funding that flooded the crypto space in 2021 and has resurfaced recently.
The purpose of his thread is to provide a deeper understanding of the major challenge in the crypto sphere, explaining the reasons behind the current market behavior and outlining a potential path forward.
Nonetheless, the surge in VC funding also coincided with a notable rise in the number of new crypto projects. Deutscher highlighted that the total count of crypto tokens tripled between 2021 and 2022.
The subsequent bear market forced many of these projects to postpone their launches, as Deutscher emphasized that introducing a project during a bear market is essentially a death sentence. Consequently, when the market eventually bounced back in Q4 2023, these delayed projects, alongside numerous new ones, inundated the market.
Deutscher’s analysis reveals that over a million new crypto tokens have been introduced since just April. This influx of tokens has led to what he describes as “altcoin dispersion,” akin to inflation in traditional economies.
He noted that the continuous introduction of new tokens has led to a reduction in crypto’s purchasing power relative to other currencies like USD. This has resulted in an estimated daily new supply pressure of $150 million to $200 million due to token unlocks and launches.
The ongoing sell pressure, coupled with a lack of fresh liquidity entering the market, has caused altcoins to significantly underperform compared to Bitcoin (BTC). Deutscher believes that addressing this issue will necessitate changes from various stakeholders in the industry, including exchanges, project teams, and VCs.
Furthermore, Deutscher warned that retail investors are increasingly disengaging from a market they perceive as unwinnable. The skew towards private markets in crypto, where new projects often launch with high market caps, has made it difficult for retail investors to participate effectively.
Despite the challenges, Deutscher maintains an optimistic outlook for the crypto market, believing that it will self-correct and adapt over time. While recent market crashes have resulted in significant losses for crypto bulls, some analysts still see opportunities for investors, especially in altcoins.
In conclusion, while the current market conditions may appear challenging for altcoins, there are analysts who believe that opportunities for profit still exist. It is important for investors to remain resilient and not be discouraged by short-term market fluctuations.