Profit-seeking venture capitalists (VCs) are bad for the long-term sustainability and price action of newly-launched cryptocurrencies.
Despite bringing new liquidity for altcoin launches, VCs introduce significant sell pressure that damages the token’s long-term price action, according to popular crypto analyst Route 2 FI, who wrote in an April 22 Substack post:
“Permissionless token listing and money-hungry VCs are bad for the individual token long term. Every year 100 new tokens launch. Diluting existing ones. It’s now April 2024, and inflows into altcoins seem way more selective and not enough to offset big unlocks.”
One of the main issues with the current token launch trend is their initially high fully diluted valuation (FDV), which promises big airdrop allocations for early adopters but comes with large unlocking schedules for early VC investors. This mechanism will lead to a price decrease for most of these new tokens. According to Route 2 FI:
“I think most new VC scam coins (high FDV coins) eventually will dump hard AF. And that you can use this to your advantage in pair trading or in situations where you want to hedge.”
The total market capitalization of altcoins, excluding Bitcoin (BTC), stood at $1.05 trillion at the time of writing, up 38% year-to-date, from $760 billion at the beginning of 2024, according to TradingView data.
The issue with large VC unlocks is the lack of demand from crypto investors, which is unable to cover the large increase in a coin’s circulating supply and the selling pressure, wrote the pseudonymous analyst.
“At some point, the supply will outnumber the demand and we will start spiraling downwards due to massive inflation. Early buyers will get trapped, which leads to bearish sentiment among the community, reduced TVL in the protocol, devs (if any) leaving for greener fields, and team members quitting.”
Related: Europe’s largest banks are moving into crypto thanks to regulations — Bitpanda
Is 2024 the end of crypto altseason?
During previous market cycles, altcoins have historically pumped after Bitcoin’s rise to new highs, as profits from Bitcoin selling are rotated into other cryptocurrencies.
However, with over “300 decent projects,” there isn’t enough liquidity for all the top altcoins to rise together, which could be the end of the altcoin season trend. Route 2 FI said:
“We hear a lot about altseason, but this time around I think things will be different… But ask yourself who is going to buy all these tokens. Unless institutions or retail are coming in masses, it will just be a forever PvP fight.”
Related: Bitcoin price breaks above $66K — Has BTC flipped bullish again?
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