VC Funding May Spell Trouble for New Cryptocurrencies, Analyst Warns
Summary:
Despite initial infusions of capital, Venture Capitalists (VCs) may damage the long-term viability and price of new cryptocurrencies, according to crypto analyst Route 2 FI. Unrestricted token listings and the hunger for quick profitability cause a diluted market and high sell pressure. High fully diluted valuations promise benefits for early adopters but also trigger sharp price drops due to large unlocking schedules for VC investors. Ultimately, without ample demand from crypto investors to offset increased coin circulation, prices may plummet, and early investors could be left stranded, leading to an overall bearish market sentiment. Additionally, with numerous viable projects, insufficient liquidity may spell an end for altcoin season trend, unless mass investments from institutions or retailers pour in.
Venture capitalists (VCs), despite infusing fresh funds into altcoin launches and creating an appearance of prosperity, are actually detrimental to the enduring viability and price movement of these newly minted cryptocurrencies, observes a well-respected crypto commentator, Route 2 FI. According to the pundit's April 22 Substack entry, unrestricted token offerings and cash-thirsty VCs negatively influence the long-term potential of individual tokens. With new tokens flooding the market annually, the value of existing tokens is watered down. As of April 2024, the inflow of investment into altcoins has dwindled, failing to balance out major unlock events.
The prevalent trend of token launches comes with a hitch – an initially sky-high, fully diluted valuation (FDV). While early adopters receive hefty airdrop allotments, early VC investors are subject to extensive unlocking provisions. This pattern spells a price slump for most emerging tokens. According to Route 2 FI, most of these high-FDV VC-invested tokens are set for a drastic fall.
Excluding Bitcoin (BTC), the total market capitalization of altcoins reached $1.05 trillion as reported, marking a 38% increase year-to-date compared to a starting point of $760 billion in 2024 based data noted on TradingView.
The key problem associated with substantial VC unlocks is the inadequate demand from crypto investors. This insufficiency fails to absorb the increased coin circulation, eventually causing the supply to outnumber the demand and resulting in a downward spiral driven by inflation. With early investors stuck in a quagmire, community sentiment turns bearish, the total value locked (TVL) in the protocol shrinks, developers potentially abandon the project, and team members depart.
Historically, during prior market cycles, altcoins have typically surged following Bitcoin reaching new peaks. Profits harvested from Bitcoin are reinvested into other cryptocurrencies. Notwithstanding, with over "300 viable projects," there isn't ample liquidity for every prominent altcoin to concurrently rise. This shift may signal the end of the altcoin season trend, believes Route 2 FI. Prompting the question: without a mass influx of institutions or retail investors, who will buy all these tokens? This could perpetually set the stage for an endless PvP struggle.
Published At
4/23/2024 3:25:13 PM
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