Altcoins
Altcoin investors face seasonal trends and liquidity challenges
The three key points of the TDR regarding Altcoin investors and liquidity problems:
- The challenges faced by altcoin investors are increasing despite the relative stability of Bitcoin (BTC) and Ethereum (ETH).
- Altcoins face constant dilution as new tokens come onto the market.
- In the first quarter of 2022, venture capital funds invested $13 billion in a bear market and now face pressure from investors to return capital as artificial intelligence gains popularity.
The challenges faced by altcoin investors are increasing, despite the relative stability of Bitcoin (BTC) and Ethereum (ETH). Major altcoins such as Solana (SOL) and Avalanche (AVAX) have seen price drops of 40% to 70%, driven by selling pressure from venture funds, high dilution from token unlocking, and a lack of new inflows of capital. Seasonal trends also play a significant role, as June is historically a bad month for altcoins.
The overall market capitalization and trading volumes in cryptocurrency markets reflect a grim reality for altcoin investors. Unlike Bitcoin and Ethereum, which have demonstrated resilience, altcoins are facing serious liquidity problems. This liquidity crisis is exacerbated by the actions of venture funds. These funds, after investing heavily during the bull run of 2021 and early 2022, are now selling off tokens to make profits, adding downward pressure to already struggling altcoins. Quinn Thomson, founder of crypto hedge fund Lekker Capital, noted in a post on , they have the opposite: a constant flow of selling pressure.”
One of the main factors behind the price decline is the high dilution resulting from the unlocking of tokens. Altcoins face constant dilution as new tokens come onto the market. This influx of new tokens dilutes the value of existing holdings, making it more difficult for prices to recover. Newly launched tokens such as Wormhole (W) and Starknet (STRK) have seen notable price drops and are expected to face continued dilution, exacerbating the bearish sentiment in the market.
The market capitalization of stablecoins has also remained stagnant, indicating reduced liquidity across the board. Stablecoins are often seen as a measure of the liquidity available in cryptocurrency markets. A stagnant or declining market capitalization for stablecoins suggests there is less capital available to flow into other crypto assets, including altcoins. This lack of new capital inflows puts further pressure on altcoin prices.
Seasonal trends contribute to current market dynamics. June has historically been a bad month for altcoins, and this year is no exception. The combination of seasonal trends, selling pressure from venture funds, and high dilution rates creates a challenging environment for altcoin investors. Markus Thielen, founder of 10x Research, highlighted the broader context in a report published last week: “Venture capital funds invested $13 billion in the first quarter of 2022, as the market turned into a steep market bearish. These funds are now under pressure from their investors to return capital as artificial intelligence (AI) has become a hotter topic.” Do you want to be updated on Cannabis, AI, Small Cap and Crypto? Sign up for our daily Baked in newsletter!