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This Is Why Altcoin Investors Struggle Despite Bitcoin, Ether Sitting Near Yearly Highs

Jun 21, 2024
    Crypto majors such as SOL, AVAX, APT, SUI saw 40% to 70% corrections over the past months, weighing on altcoin sentiment, while BTC and ETH are down only 15% from their yearly highs.Venture funds are under pressure to sell tokens to realize profits on their investments made in the past years, Markus Thielen noted.The lack of capital inflows to crypto markets “has particularly bad implications for tokens with large upcoming unlocks as well as new [tokens] and airdrop programs,” Anagram partner David Shuttleworth said.
As a crypto investor with some experience under my belt, I’ve seen the market go through its ups and downs. The recent correction, affecting mainly the altcoins, has been particularly harsh for those who invested in smaller cryptocurrencies. While Bitcoin (BTC) and Ethereum’s ether (ETH) have only seen a 15% decrease from their yearly highs, coins like Solana (SOL), Avalanche (AVAX), Sui (SUI), and Aptos (APT) have taken much bigger hits, with corrections ranging from 40% to an alarming 70%.After experiencing significant growth from October through March, the cryptocurrency market is currently undergoing a normal period of stabilization for investors in the top two digital assets.

As a researcher studying the cryptocurrency market, I’ve observed that those holding lesser-known digital assets are currently experiencing a harsh correction. The mood within crypto social media communities seems to mirror the hopelessness typically associated with bear markets.

Bitcoin (BTC) and Ethereum’s ether (ETH) are just 15% shy of reaching their highest values recorded this year. However, some significant cryptocurrencies like Solana (SOL) and Avalanche (AVAX) have experienced a more substantial decline, with losses ranging from 40% to 50% since their March peaks. Furthermore, newer layer-1 competitors Sui (SUI) and Aptos (APT) have suffered significant losses, with price drops of approximately 60% to 70%.

The demand to sell cryptocurrencies from venture capital firms, coupled with an increasing supply of tokens being released, the absence of new investments flowing into crypto markets, and seasonal trends have combined to weaken altcoins – a term used for cryptocurrencies other than Bitcoin and Ethereum.

High dilution

In simpler terms, the supply of many alternative coins is gradually increasing due to scheduled token releases and unlocks, while a significant portion of their tokens are currently locked or set aside for future use by early investors and developers.

As a researcher studying the cryptocurrency market, I’ve noticed that Arbitrum’s token, ARB, is approaching its lowest price point since last September despite a significant rise in its market capitalization. This increase in market cap can be attributed to a substantial expansion in ARB’s supply.

Solana sees a daily increase of 75,000 tokens, equivalent to around $10 million based on current market prices, added to its supply.

In contrast to equities that experience consistent buying pressure from ETF investments and corporate bond buybacks, cryptocurrencies, specifically altcoins, encounter persistent selling pressure according to Quinn Thomson, the founder of Lekker Capital.

Many venture capital firms are cashing in on their earlier investments in tech projects, contributing notably to the current market pressure for sales.

In Q1 2022, venture capital firms allocated a staggering $13 billion in investments, according to a recent report by Markus Thielen of 10x Research. However, the market took a sharp downturn, transforming into a steep bear market. As a result, these investment firms are now facing mounting pressure from their investors, who are increasingly eager for their funds to be reinvested in the red-hot field of artificial intelligence (AI).

During periods when investor interest in smaller, riskier cryptocurrencies wanes and trading activity decreases, as observed recently, there isn’t sufficient buying power to soak up the oversupply in the market.

Lack of fresh inflows

As a researcher studying the cryptocurrency market, I’ve observed a notable decrease in liquidity inflows over the past few weeks. This trend is reflected in the market value of stablecoins, which serve as crucial intermediaries for crypto trading transactions.

According to TradingView data, the total value in the free market for the four largest stablecoins – Tether’s USDT, Circle’s USDC, First Digital’s FDUSD, and Maker’s DAI – has remained unchanged since April following a significant increase of approximately $30 billion earlier this year.
This Is Why Altcoin Investors Struggle Despite Bitcoin, Ether Sitting Near Yearly Highs

According to Nansen’s data, cited in a recent post by David Shuttleworth, a partner at Anagram, stablecoin holdings on cryptocurrency exchanges have dropped by approximately $4 billion, reaching their lowest point since February. This decrease translates to less readily available funds for traders and investors, often referred to as “dry powder.”

“Tokens with significant forthcoming releases or those newly introduced, along with airdrop initiatives, face particularly unfavorable consequences according to Shuttleworth.”

Over the past short while, the newly introduced tokens of the blockchain interconnection Wormhole (W), the yield-generating synthetic dollar platform Ethana (ENA), and the layer-2 network Starknet (STRK) have experienced a significant drop in value, with each losing approximately 60% to 70% from their peak prices. These tokens are predicted to distribute substantial amounts of funds, totalling billions of dollars, in the upcoming years.

Smaller tokens have generally experienced negative trends during the changing seasons, and historically, June has been a difficult month for altcoins.

Based on data from TradingView, the combined market capitalization of cryptocurrencies other than Bitcoin and Ethereum, as represented by the TOTAL.3 metric, has decreased every year in the month of June over the past six years.

This month is on track to be no exception, with TOTAL.3 down 11% to date.

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2024-06-22 00:29