The Hidden Flaw in Crypto Explained: Altcoin Dispersion Is Undermining the Market
Altcoin Dispersion Is Undermining the Market
The cryptocurrency market is often seen as a revolutionary space brimming with opportunities. However, beneath the surface, a fundamental flaw threatens its stability and growth: Altcoin dispersion. That is what Miles Deutscher (@milesdeutscher) tweeted on X. Deutscher is a crypto analyst and self declared DeFi addict.
Note that the tweets date from June 18 already, still they offer an extremely value insight on why even high quality altcoins have trouble performing well.
Still according to the analyst this flaw, rooted in altcoin dispersion, is causing underperformance in altcoins during this cycle. In this article, we delve into the insights shared by him to understand this issue, its origins, and its implications for the future of crypto.
A MAJOR fundamental flaw in crypto is starting to emerge.
— Miles Deutscher (@milesdeutscher) June 18, 2024
It's the #1 reason why altcoins are underperforming this cycle.
And currently, there seems to be no fix.
I just dug through all the data (what I found was shocking).
🧵: How altcoin dispersion is killing crypto.👇
The Rise and Fall of the Crypto Market
In 2021, the cryptocurrency market experienced an unprecedented boom. Fresh retail investors flooded the market, driving liquidity to new heights and fueling a bullish frenzy. The risk appetite was at its peak, and it seemed the bull market was unstoppable.
During this time, VCs started pouring unprecedented amounts of capital into the space.
— Miles Deutscher (@milesdeutscher) June 18, 2024
Founders & VCs are just like retail – they're opportunists.
The uptick in investment was a natural capitalistic response to market conditions. pic.twitter.com/O4Icd0YYMX
The Role of Venture Capital
During this time, venture capital (VC) played a pivotal role in shaping the crypto landscape. VCs began injecting vast amounts of capital into early-stage projects. This investment was not just about funding; it also involved providing essential services and connections to help these projects succeed.
VC investments typically occur 6 months to 2 years before a project’s launch, often at lower valuations with attached vesting periods. This strategic timing allows VCs to capitalize on market conditions and maximize their returns.
The Peak and Its Consequences
Interestingly, the first quarter of 2022 marked the highest ever quarter for VC funding in crypto, with $12 billion invested. This influx of capital coincided with the beginning of the bear market, suggesting that VCs timed their investments to perfection, potentially exacerbating the market downturn.
Interestingly, the largest quarter EVER for VC funding ($12b) was Q1 2022.
— Miles Deutscher (@milesdeutscher) June 18, 2024
This marked the beginning of the bear (yes, VCs timed the top). pic.twitter.com/YUYNd1C4UE
The Fundamental Flaw: Altcoin Dispersion
The primary issue in this series of tweets by Miles Deutscher is the dispersion of altcoins. This dispersion dilutes investor focus and capital, leading to underperformance of altcoins (even those who have a very good project going on) compared to major cryptocurrencies like Bitcoin and Ethereum. The lack of concentrated investment and attention makes it difficult for altcoins to gain significant traction and value.
Here are the stats. They're crazy.
— Miles Deutscher (@milesdeutscher) June 18, 2024
Over 1 million new crypto tokens have been launched since April alone.
(half of which are meme coins created on the Solana network). pic.twitter.com/7Yeffv9Aa6
Without a solution to this issue, altcoins may continue to struggle in the shadow of larger cryptocurrencies.
Viability of Many Altcoin Jeopardized
The viability of many altcoin projects is jeopardized by insufficient funding and support, leading to a higher failure rate and eroding investor confidence. Consequently, investors must adopt a selective and informed approach to altcoin investments, focusing on projects with strong fundamentals, clear use cases, and robust backing to mitigate the risks associated with dispersion.
Understanding the dynamics between retail investors, VCs, and market cycles is crucial. It allows investors to anticipate trends and make informed decisions. Therefor retail investors need to be aware of the timing and impact of VC investments in the market. Thorough evaluation of altcoin projects is essential. Investors should focus on projects with sustainable development, clear use cases, and robust backing.
