This Is The Biggest Issue With Altcoins This Cycle: Crypto Analyst

in thread At X, Miles Deutscher, a renowned name in the crypto analysis field, analyzed what he believes to be a critical flaw in the current altcoin market. Addressing his wide following, Deutscher detailed the impact of the proliferation of new crypto tokens, an issue he believes is at the root of altcoins’ underperformance this cycle.

The rise of cryptocurrencies

Since April 2024, the cryptocurrency world has seen the introduction of over one million new cryptocurrency tokens, more than half of which are meme coins primarily created on the Solana network. According to Deutscher, the ease of deploying these tokens on-chain has contributed to the increase in token numbers, but it also highlights a deeper issue: market saturation and dilution.

Deutscher further stated: “Crypto token volume is currently 5.7 times higher than it was at the peak of the 2021 bull market, which is the main reason why crypto assets have struggled this year despite Bitcoin hitting new all-time highs. ” He likened the excess issuance of new tokens to inflation, saying: “The more tokens that are issued, the greater the cumulative supply pressure on the market.”

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The analyst also shed light on venture capital (VC) investment trends in the crypto space, noting that the largest-ever VC funding volume was $12 billion in the first quarter of 2022, when the market began to weaken. Deutscher criticized VC timing and strategy, noting that while VC capital injections are essential for project development, they often lead to market imbalances.

“VCs, like private investors, are opportunistic. The timing of their investments is often aimed at maximizing returns rather than supporting sustainable project growth, contributing to cyclical peaks and troughs in the market,” Deutscher explains. He goes on to discuss the ensuing market impact, noting that when unfavorable conditions cause project launches to be delayed, investors flood the market when sentiment shifts, exacerbating dilution.

The constant introduction of new tokens not only puts a strain on market liquidity, but also affects the confidence of investors, especially retail investors. Deutscher emphasizes that “private market bias is one of the biggest and most pernicious problems in cryptocurrencies, especially compared to other markets such as stocks or real estate.”

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This environment creates new barriers to entry for liquidity, leaving retail investors feeling alienated, a feeling exacerbated by high-profile failures like LUNA and FTX. Deutscher argues, “If retail investors feel they can’t win, they won’t play the game. That’s why memes have become so mainstream this year. Memes are the only meta that makes retail investors feel like they have a chance to win.”

Going forward, Deutscher suggested several strategies to mitigate these issues: exchanges could implement better token distribution standards and prioritize allocations to larger communities. Additionally, adjusting the percentage of tokens unlocked at launch could help them manage selling pressure more effectively.

“Even if insiders don’t force change, the market will eventually force change,” Deutscher argues. He suggests that exchanges should adopt strict standards for listing new projects and be equally strict in delisting projects that don’t meet the current standards, thereby maintaining market health and liquidity.

In his closing remarks, Miles Deutscher said he hoped his insights would deepen understanding and prompt a re-evaluation of current practices: “Decentralization is not the only problem, but it is certainly a big one, and one that needs to be discussed more openly in order to foster a healthier cryptocurrency ecosystem.”

At the time of writing, Ethereum (ETH) was trading at $3,562.

Ethereum Price Surpasses 0.618 Fibonacci Level and Holds One-Week Chart | Source: ETHUSD on TradingView.com

Featured image from Shutterstock, chart from TradingView.com

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