In past bull market cycles, after mainstream coins like Bitcoin rose, altcoins would soon follow with their own rallies. However, in this cycle, times have changed. Even though Bitcoin has surged significantly, the altcoin rally is not expected to follow.
Spot ETFs Draw New Funds from This Cycle
The emergence of Bitcoin spot ETFs may be altering the market structure. In previous bull markets, the inflow of new funds followed this path: first into major cryptocurrencies like Bitcoin and Ethereum, then spilling over into altcoins.
This bull market, however, might be different. For new entrants, instead of investing in highly volatile cryptocurrencies, it’s more appealing to invest in crypto ETFs in a more familiar and traditional way. As a result, these funds naturally flow into the relatively more stable Bitcoin spot ETFs.
The issuance of Bitcoin and Ethereum ETFs not only brings in new funds but also influences investor behavior, siphoning off future market liquidity. Many retail investors and newcomers unfamiliar with cryptocurrencies are likely to invest directly in ETFs at the start of a bull market, leaving new projects facing a tough situation with no users and no recognized technical narrative.
Despite crypto enthusiasts hoping for institutions to launch spot ETFs for altcoins, it’s evident that achieving this goal in this cycle is still challenging. Even BitMEX founder Arthur Hayes optimistically predicts that a Dogecoin ETF might be launched only at the end of this cycle.
Oversupply of Altcoins Faces Continued Selling Pressure
The lack of new funds is just one aspect. Another influencing factor is the massive unlocking of new altcoins and the selling pressure from venture capitalists (VCs), leading to a market supply of altcoins far exceeding demand.
Data shows that in June alone, tokens worth $800 million will be unlocked and flow into the market, including major projects like dYdX, SUI, 1INCH, Ethena (ENA), Arbitrum (ARB), Aptos (APT), and Starknet (STRK).
The sudden influx of these newly unlocked tokens is bound to stir up the market, especially when the growth of new funds is slow, and the existing funds cannot absorb such a large supply of tokens.
Additionally, some early VCs have seen their returns multiply tenfold or more in altcoins. Out of a need to realize gains or due to concerns about the future market, they will inevitably continue selling in the market, leading to a domino effect where altcoin prices are destined to decline.
As Quinn Thompson, founder of crypto hedge fund Lekker Capital, said, the market will need about $3 billion per month over the next one to two years to cope with the inflation of altcoin supply. Although some altcoins might still perform well, identifying these tokens will be more challenging than in previous cycles.
Overall, crypto investors should temper their expectations for altcoin market performance in the future; this altcoin season is likely to be absent.
-
-
-
-
-
-
-
-
