Market veteran reveals what’s behind recent recession as altcoins lose $137 billion

Renowned analyst Mike Deutscher has identified altcoin dispersion as one of the major factors behind the ongoing downtrend, as the top 125 altcoins shed $137 billion in valuation.

The cryptocurrency market is currently experiencing a significant downturn, with the value of Bitcoin plummeting to $65,000. This decline has had a profound effect on altcoins.

In particular, the data indicates that the market valuation of the 125 major altcoins (TOTAL2) fell by $137 billion, from $1.185 trillion on June 5 to $1.048 trillion. Amid this turmoil, Mike Deutscher, a veteran market analyst, provided an explanation of the causes behind this downward spiral in a recent post on X.

Altcoin dispersion is a major factor behind the ongoing downtrend

According to Deutscher, a significant problem in the cryptocurrency market is the main reason for the underperformance of altcoins in the current market cycle. He identified this flaw as a concept called “altcoin dispersion.”

In his commentary, Deutscher reflected on the state of the market in 2021. During this period, the market has thrived with an influx of new liquidity, primarily driven by retail investors. Bullish sentiment was at its peak, and venture capitalists (VCs) have responded by investing unprecedented amounts of capital into the cryptocurrency sector.

Venture capitalists typically invest in projects early, often six months to two years before launch, at lower valuations. This investment helps fund the development of the project, with these VCs providing additional support services.

The first quarter of 2022 marked the highest quarter ever for VCs financing, with $12 billion invested, coinciding with the start of the bear market. This influx of capital has resulted in a wave of new projects, leading to the total number of crypto tokens tripling between 2021 and 2022.

However, the market soon faced a series of catastrophic events, starting with the collapse of LUNA and culminating in the collapse of FTX. These events had a serious impact on the market, prompting projects that had previously raised funds to delay their launch.

Launching during a bear market, characterized by low liquidity and poor sentiment, was seen as a recipe for failure. As a result, many projects have postponed their launches, waiting for more favorable conditions.

A wave of new Altcoins

By the fourth quarter of 2023, market conditions had improved, resulting in a wave of delayed project launches. This trend has continued into 2024, with an unprecedented number of new tokens flooding into the market.

Deutscher stressed out that over one million new crypto assets have been introduced since April, half of which Solana meme coins. Even excluding the smaller meme coins, the number of new tokens is staggering. CoinMarketCap currently tracks over 2.4 million crypto assets.

The wave of new tokens has led to significant supply pressure on the market. This pressure “builds up” over time, with projects from previous years continuing to unlock their tokens.

An additional daily supply pressure of between $150 and $200 million is estimated. This persistent selling pressure, similar to inflation, reduces the purchasing power of cryptocurrencies.

Deutscher disputed that the cryptocurrency market’s version of inflation, driven by altcoin dispersal, is exacerbating the current recession. This is due to the high frequency of launches of new cryptocurrencies, as well as less liquidity entering the market.

Additionally, many new tokens have low fully diluted valuations (FDV) and high float mechanisms, further contributing to market instability.

The proposed solution

To address these problems, Deutscher suggested several measures. He asks exchanges to ensure that there is a better token distribution mechanism and that project teams prioritize community allocations with larger pools for real users.

It also recommended unlocking a higher percentage of tokens at launch, potentially implementing measures such as scaled sales taxes to discourage dumping.

Furthermore, the analyst highlighted the need for a more retail investor-friendly market to encourage participation. He suggested that exchanges be more pragmatic, balancing new listings with the cancellation of dormant projects to free up precious liquidity.

Ultimately, a more inclusive market benefits all stakeholders, including exchanges, VCs, and crypto projects.

Disclaimer: This content is informational and should not be considered financial advice. The opinions expressed in this article may include the personal opinions of the author and do not reflect the opinion of The Crypto Basic. Readers are encouraged to do thorough research before making any investment decisions. Crypto Basic is not responsible for any financial losses.

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