BTC and ETH fluctuate at high levels, why do altcoins turn bearish?

Compiled by: Felix, PANews

Key points:

• In the past few months, SOL, AVAX, APT, SUI, etc. have experienced a 40%-70% correction, which has suppressed the altcoin market sentiment, while BTC and ETH have only experienced year-on-year declines. It was down about 15% from its high point.
• Markus Thielen pointed out that venture capital funds are under pressure to sell tokens in order to realize profits from investments made in the past few years.
• David Shuttleworth, a partner at Anagram, said that the lack of capital inflows in the crypto market “has a particularly adverse impact on upcoming large-scale unlocking of tokens, newly issued tokens and airdrop programs.”

The crypto market is going through a healthy correction (at least for those invested in BTC and ETH) after experiencing a huge rise from October of last year to March of this year. However, it has been a brutal correction for those holding altcoins, with market sentiment in the crypto community resembling bear market-like despair.

While BTC and ETH are only 15% off their yearly highs, altcoins like SOL and AVAX are down 40% to 50% from their March peaks, while SUI and APT are down 60% to 70%.

Selling pressure from VC funds, coupled with increased supply token unlocks, a lack of new crypto inflows, and seasonal trends have all contributed to altcoin weakness.

Unlocking leads to high dilution

Many altcoins have their token supply constantly diluted due to unlocking and distribution. Because most tokens are locked up either purchased by early investors or earmarked for ecosystem development and grants.

For example, the price of Ethereum L2 network Arbitrum token ARB is close to its all-time low since September last year despite its market capitalization rising from $1 billion to $2.5 billion due to a significant increase in supply.

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

Quinn Thomson, founder of crypto hedge fund Lekker Capital, pointed out on the Selling pressure. "

A large part of the selling pressure comes from venture capital funds, which have invested in projects early in the past few years to achieve profitability.

Markus Thielen, founder of 10x Research, said in a report last week: "Venture capital funds invested $13 billion in the first quarter of 2022, and the market quickly entered a bear market." "As AI becomes an even hotter topic areas, these funds are now facing pressure from investors to return capital."

When market interest in smaller, more speculative crypto-assets wanes and trading volumes decline (as it has over the past few months), there isn’t enough demand to absorb the hit of dilution.

Lack of new capital inflows

Flows into the crypto market have also stalled or even reversed in the past few weeks, as evidenced by the market value of stablecoins.

The combined market capitalization of the four major stablecoins (Tether’s USDT, Circle’s USDC, First Digital’s FDUSD, and Maker’s DAI) has been flat since April after growing by $30 billion earlier this year, according to TradingView .

USDT、USDC、FDUSD和DAI的总市值（TradingView）

Anagram partner David Shuttleworth noted in an X post citing Nansen data that stablecoin balances on the exchange fell by $4 billion to their lowest level since February. Shuttleworth said: “This will have a very negative impact on the upcoming large-scale unlocking of tokens, newly issued tokens and airdrop plans.”

The recently launched tokens Wormhole (W), Ethena (ENA) and Starknet (STRK), their tokens Prices have both plummeted approximately 60% to 70% from their respective highs and are facing billions of dollars worth of token distributions over the next few years.

Seasonal trends are also bearish for smaller market cap coins, with June typically being a down month for altcoins.

TradingView data shows that the total market capitalization (TOTAL3 indicator) of crypto assets excluding BTC and ETH has declined every June for the past six years.

This month is no exception, TOTAL.3 has fallen by more than 15% so far.

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