Altcoins Bearish Despite BTC, ETH Stability

The cryptocurrency market, which had experienced an exhilarating surge from October of last year through March of this year, now appears to be entering a phase often referred to as a "healthy correction." However, this term "healthy" seems to apply mainly to investors holding Bitcoin (BTC) and Ethereum (ETH). In stark contrast, those who have invested in altcoins are grappling with a harsh reality, as market sentiments within the crypto community reflect a despair akin to a prolonged bear marketInvestors are witnessing dramatic depreciations in their altcoin portfolios while feeling powerless to reverse their fortunes.

Statistical evidence starkly illustrates this polarized landscapeWhile BTC and ETH remain only about 15% below their yearly peaks, retaining relatively high market capitalization and investor confidence, altcoins like Solana (SOL) and Avalanche (AVAX) have plummeted by 40% to 50% since their March highs

Compounding the situation, currencies like SUI and Aptos (APT) have suffered catastrophic declines of 60% to 70%. These unsettling statistics reveal not just a dip in value but a breach in investor trust, with many altcoins losing substantial market share in rapid succession.

Multiple factors have contributed to the recent downturn in altcoin performanceNotably, the pressures from venture capital firms looking to liquidate their holdings in order to realize profits from investments made over the past few years play a significant roleCoupled with this is the increasing supply of unlocked tokens combined with a lack of new inflows of capital into the cryptocurrency market, which together form a perfect storm for altcoinsAdditionally, the seasonal trends in the cryptocurrency market usually point toward a downturn during the summer months.

Token unlocks, which dilute supply, have burdened several altcoins

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Most tokens are initially acquired by early investors or set aside for ecosystem development, creating a locked supplyAs these tokens begin to unlock, the total supply available on the market often rises substantiallyFor instance, take the case of the ARB token from the Ethereum Layer 2 network, ArbitrumAlthough its market cap soared from $1 billion to $2.5 billion, its price is languishing close to a historic low since September of the previous year due to increased supply.

Solana provides another sobering example with the daily increase of 75,000 tokens, amounting to approximately $10 million at current valuationsQuinn Thomson, founder of the crypto hedge fund Lekker Capital, remarked on the situation in a post on the social media platform X, emphasizing how, unlike traditional markets where funds tend to flow in via ETFs or bond buybacks resulting in passive investments in stocks, the crypto sector, especially altcoins, faces relentless selling pressure.

Significantly, this selling pressure largely emanates from venture capital firms that are under immense pressure to generate returns from their early-stage investments

For instance, Markus Thielen, the founder of 10x Research, noted in a report last week that VC funds had invested a staggering $13 billion in the first quarter of 2022 only to see the market rapidly descend into a bear phaseMeanwhile, as interests pivot toward areas like artificial intelligence, these funds now feel the heat of investors demanding their money back.

When the market's interest wanes for smaller and more speculative crypto assets—evident from the slow trading volumes in recent months—there is an insufficient demand to absorb the shocks from token dilutionThe last few weeks have witnessed a significant stagnation of new capital inflow into the crypto market, with even reversals evident in the market values of stablecoins, which often gauge market sentiment.

As highlighted by TradingView data， the total market capitalization of major stablecoins, namely Tether's USDT, Circle's USDC, First Digital's FDUSD, and Maker's DAI, saw a remarkable uptick of $30 billion earlier this year, but they have been stagnant since April.

Specifically, it was observed that the total stablecoin balances on exchanges have decreased by a whopping $4 billion, reaching the lowest levels since February

David Shuttleworth, a partner at Anagram, pointed out the implications of this low liquidity, stating that it has particularly adverse effects on a wave of token unlocks, new issuance of tokens, and airdrop initiatives coming down the pipeline.

To illustrate further, recently launched tokens like Wormhole (W), Ethena (ENA), and Starknet (STRK) have all witnessed price collapses ranging from 60% to 70% from their respective peaks, ahead of substantial token distributions projected to happen over the next few years, amounting to billions in valueThe seasonal trend for smaller-cap tokens is often bearish as well, with June being historically recognized as a month of decline for altcoins.

In fact, data from TradingView indicates that, excluding BTC and ETH, the overall market cap of crypto assets has consistently declined each June over the last six yearsThis month appears to be no different, as the total market valuation has already dropped more than 15% thus far.

As the cryptocurrency space continues to evolve amidst these headwinds, one can only wonder how these dynamics will shift in the coming months