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

• Top cryptocurrencies such as SOL, AVAX, APT, SUI have seen corrections of 40% to 70% in recent months, weighing on altcoin sentiment, while BTC and ETH are down just 15% from their yearly highs.

• Venture funds are under pressure to sell tokens to make profits on investments made in recent years, Markus Thielen noted.

• The lack of capital flows into crypto markets “has particularly bad implications for tokens with large upcoming unlocks as well as new [tokens] and air launch programs,” said David Shuttleworth, partner at Anagram.

The cryptocurrency market is experiencing healthy consolidation after a huge surge from October to March – at least for those who have invested in the two biggest digital assets.

For those holding smaller cryptocurrencies, though, this is a brutal correction, with the sentiment in crypto social media circles similar to bear market despair.

While Bitcoin {{BTC}} and Ethereum Ether {{ETH}} are just 15% off their yearly highs, several major cryptocurrencies like Solana {{SOL}} and Avalanche {{AVAX}} are down 40% to 50%. % of their March Peaks, while tier 1 challengers sui {{SUI}} and fit {{APT}} had craters of 60% to 70%.

Selling pressure from venture funds as the unlocking of supply tokens widens, a lack of new inflows into cryptocurrencies, and seasonal trends have contributed to weakness in altcoins, a term used to describe cryptocurrencies beyond the largest such as bitcoin and ether .

High dilution

Many altcoins experience a dwindling supply of tokens through unlocks and distributions scheduled over the next few years. This is because most tokens are locked, purchased by early investors or earmarked for ecosystem development and subsidies.

For example, the Ethereum layer 2 network’s Arbitrum token {{ARB}} is approaching its all-time low price since last September, even though its market capitalization has risen from $1 billion to $2.5 billion due to a massive increase in its supply.

Another example is Solana, whose supply is inflating by 75,000 tokens, worth about $10 million at current prices, every day.

“Unlike stocks that have a constant passive supply of ETF inflows and bond buybacks, cryptocurrencies, and in particular altcoins, have the opposite – a constant flow of selling pressure,” Quinn Thomson, founder of the hedge fund Lekker Capital crypto, observed in a post X.

The story continues

A significant part of the selling pressure comes from venture capital funds making profits on their first investments in projects launched in recent years.

“Venture capital funds invested $13 billion in the first quarter of 2022 as the market turned into a steep bear market,” said Markus Thielen, founder of 10x Research, in a report earlier this week. “These funds are now under pressure from their investors to return capital as artificial intelligence (AI) becomes a hotter topic.”

When the market appetite for smaller, more speculative cryptoassets is waning and trading volumes are falling – as they have been in recent months – there is not enough demand to absorb this supply shock.

See more information: Crypto Markets Under Pressure with $2B Altcoin Token Unlocks and $11B Bitcoin Distribution

Lack of new entries

Liquidity flows into cryptocurrency markets have also stagnated or even reversed in recent weeks, as demonstrated by the market value of stablecoins, which are primarily used as intermediaries for cryptocurrency trading.

The combined market capitalization of the four largest stablecoins – Tether’s USDT, Circle’s USDC, First Digital’s FDUSD and Maker’s DAI – has been stable since April, following a $30 billion expansion earlier this year, according to data from TradingView.

Combined Market Capitalization of USDT, USDC, FDUSD and DAI (TradingView)

Stablecoin balances on exchanges – which translate into dry powder for traders and investors – have declined by $4 billion to the lowest level since February, Anagram partner David Shuttleworth noted in a statement. X post citing data from Nansen.

“This has particularly bad implications for tokens with major upcoming unlocks, as well as new [tokens] and air launch programs,” Shuttleworth said.

Recently launched tokens from blockchain bridge Wormhole (W), yield-bearing synthetic dollar protocol Ethena (ENA), and layer-2 network Starknet {{STRK}} have plummeted around 60% to 70% in price from their respective highs and will face billions of dollars worth of tokens being distributed in the coming years.

Seasonal trends have also been bearish for smaller tokens, with June generally being a bearish month for altcoins.

TradingView data shows that the aggregate market cap for crypto assets, excluding BTC and ETH, captured by TOTAL.3 metric, has seen a decline in every June for the past six years.

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

Fuente