A significant flaw is emerging in the cryptocurrency market, threatening its stability and growth. According to cryptocurrency analyst Miles Deutscher, this issue primarily stems from the poor performance of altcoins in the current cycle, with no immediate solution in sight.
Table of Contents
Understanding the Cycle Journey: Rise and Fall of Bull Markets
2021: The Market Frenzy
Role of Venture Capitalists
Explosive Growth of Cryptocurrency Tokens
Unprecedented Emergence of New Tokens
Token Dilution: Continuous Inflation
Supply Pressure and Market Impact
High FDV and Low Circulation Create Issues
Solutions and Paths Forward
Need for Increased Liquidity
Improvement Measures
Role of Exchanges
Conclusion
Miles Deutscher notes that a highlight of the 2021 cryptocurrency market was “influx of new liquidity,” largely driven by retail investors. At that time, the bull market seemed unstoppable, with investors eager to take risks. Venture capitalists (VCs) also poured unprecedented amounts of capital into startups and tokens, fostering a prosperous environment.
Stablecoin Issuance Growth Soars
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Aggregated 2023: 300 global cryptocurrency VCs managing $83.9 billion in crypto VC industry
)
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Miles Deutscher’s statistics reveal that VCs made early investments at lower valuations in the 6 months to 2 years before project launches. This investment provided funds for project development and offered additional services and networks. Interestingly, the first quarter of 2022 marked the peak VC funding period, reaching $12 billion, coinciding with the beginning of the bear market.
Peak VC Investment, Prices Begin Declining
Miles Deutscher points out that the combination of low barriers and high potential returns during the bull market led to a massive increase in new tokens. Between 2021 and 2022, the total number of cryptocurrency tokens tripled. However, subsequent market downturns, compounded by events like the collapse of LUNA and FTX, caused many projects to delay releases, awaiting 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 launched, with a significant portion on the Solana network being meme coins.
Miles Deutscher emphasizes that the influx of new tokens has brought significant supply pressure to the market. An estimated $150-200 million in new supply pressure is exerted daily. This constant selling pressure affects the market similarly to inflation in traditional currencies.
Many new tokens are launched with low Fully Diluted Valuation (FDV) and high circulation mechanisms, leading to continuous supply pressure and dispersion. The result is a market facing dilution and insufficient new liquidity.
Miles Deutscher uses “dispersion” rather than the more positive-sounding “distributed” to highlight the idea that token supply is dispersed among all investors in demand, potentially leading to oversupply as supply continues to increase.
To address this issue, Miles Deutscher believes the cryptocurrency market needs more liquidity. However, the current trend towards private market concentration is causing harm and making retail investors feel excluded.
Several measures could help alleviate the problem:
Exchanges strengthening token distribution management.
Projects prioritizing community allocation and providing larger pools for genuine users.
Implementing staggered sales taxes to prevent dumping.
Many of these solutions have been previously discussed. He believes that even if industry insiders do not enforce change, the market will eventually force change on its own. Markets always self-correct and adjust.
Most current issues are short-sighted. The market needs to give retail investors a reason to return, which would solve at least half of the problems.
He suggests that exchanges need to be more pragmatic, balancing new listings and delistings to clear out projects that no longer operate and release valuable liquidity.
The dispersion problem of altcoins is a major challenge in the cryptocurrency market. Addressing this issue requires exchanges and projects to adopt a market-friendly approach and pragmatic measures. Although 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.
Altcoin
Miles Deutscher
Token Economy
Altcoins
Further Reading
SEC Pressure! Veteran Exchange Bitstamp Delists Some Competing Coins, Seeks Funding to Expand Territory
Celsius Starts Selling! Transfers Over $66.6 Million in Altcoins, Sells Crypto Custody Platform