Crypto analyst highlights a “major fundamental flaw” that causes altcoins to outperform this cycle

Crypto analyst Miles Deutscher recently highlighted a “major fundamental flaw” that he believes is the primary reason behind the underperformance of altcoins in the current market cycle.

Deutscher detailed his findings in a X (formerly Twitter) row on June 18th. According to the analyst, the problem stems from the unprecedented amount of venture capital (VC) funding poured into cryptographic space in 2021 and recently flooded the market again.

However, the influx of venture capital funding has also coincided with a significant increase in the number of new funding cryptographic projects. Deutscher highlighted that “total crypto tokens have tripled[ed] between 2021 and 2022.”

The bear market that followed saw many of these projects delay their launches. “Launching a project in the middle of a bear is a death sentence,” Deutscher explained. As a result, when the market finally recovered in the fourth quarter of 2023, these delayed projects, along with many new ones, flooded the market.

Too many altcoins dilute retail attention

Deutscher’s report shows that “over 1 million new crypto tokens have been launched since April alone.” This massive influx of new tokens has led to what he calls “altcoin dispersion,” which he likens to inflation in the mainstream economy.

New Blockchain tokens. Source: Dune / Miles Deutscher

“If you print more tokens, this, in turn, reduces the purchasing power of cryptocurrencies relative to other currencies (like the USD),” Deutscher said.

It is estimated that there is currently “around $150-200 million of new supply pressure per day” due to token unlocking and new launches.

This constant selling pressure, combined with the lack of new liquidity in the market, has led to the current situation where altcoins significantly underperform Bitcoin (Bitcoin). Deutscher believes that addressing this issue will require changes from various industry players, including exchangesproject team and VC.

“Retail feels like it can’t win,” the analyst says

From another perspective, the analyst warns that retail is moving away from a market in which it cannot compete.

“Private market bias is one of the biggest (and most damaging) problems with cryptocurrencies, especially when compared to other markets like stocks and real estate. This bias becomes a problem because retail feels like it can’t win. And if they feel they can’t win, they won’t play.”

This is because new projects are usually launched with a market capitalization of between $5 billion and $20 billion, with little to no room for price discovery. Many of these projects come to market overvalued, slowly draining capital as private investors gradually unload their locked tokens.

Despite the challenges, Deutscher remains optimistic about the future of the cryptocurrency market. He believes that “the market will always correct and adjust itself” and that “a more retail-friendly market bodes well for everyone.”

In contrast, the recent market crash has seen Crypto bulls lost nearly $400 million in long position liquidationswith over 165,000 traders receiving “rect.’ The market capitalization lost $136 billion in a single day, and altcoins were particularly hard hit.

While current market conditions may seem bleak for altcoins, some analysts believe opportunities still exist. This was stated, for example, by the trader Jelle altcoins represent a “once-in-a-few-years golden opportunity” for investors to “make a lot of money”. He believes this opportunity is already starting to unfold and urges traders not to be rattled.

Disclaimer: The content of this site should not be considered investment advice. Investing is speculative. When you invest, your capital is at risk.

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