Miles Deutscher, a well-known figure in the cryptocurrency analysis world, analyzed in an Deutscher detailed the implications of the rapid rise of new cryptocurrency tokens with a wide following. This is an issue he believes is at the core of altcoins’ poor performance this cycle.
Spread of cryptocurrency
Since April 2024, the cryptocurrency industry has seen the introduction of more than 1 million new cryptocurrency tokens, a notable half of which are memecoins, primarily created on the Solana network. According to Deutscher, the ease of distributing these tokens on-chain contributes to increasing the number of tokens, but highlights the more serious problem of market saturation and dilution.
“We currently have 5.7 times the volume of cryptocurrency tokens compared to the 2021 peak, which is the main reason why cryptocurrencies are struggling this year despite Bitcoin hitting new all-time highs,” explains Deutscher. He likens the excessive issuance of new tokens to inflation. He said, “The more tokens are launched, the greater the cumulative supply pressure on the market.”
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The analyst also highlights the dynamics of venture capital (VC) investments in the cryptocurrency space, noting that the largest quarter of VC funding peaked at $12 billion in the first quarter of 2022, when the market began to take a bearish turn. I did. Deutscher criticizes the timing and strategy of VCs, suggesting that while VCs’ capital injections are essential for project development, they often lead to market imbalances.
“VCs are opportunists, just like retail investors. The timing of their investments is often aimed at maximizing returns rather than supporting sustainable project growth, contributing to the cyclical peaks and troughs of the market,” explains Deutscher. He goes on to discuss the downstream market effects, such as delays in project launches under adverse conditions and worsening dilution by flooding the market when sentiment changes.
The constant introduction of new tokens not only puts a strain on market liquidity, but also affects investor confidence, especially among retail investors. “Bias towards private markets is one of the biggest and most dangerous problems in cryptocurrencies, especially compared to other markets such as stocks and real estate,” Deutscher emphasizes.
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This environment creates barriers to entry for new liquidity and leaves retail investors feeling alienated, a mood exacerbated by high-profile failures such as LUNA and FTX. Deutscher argues, “If retail investors feel they can’t win, they won’t play the game. That’s why memes have dominated this year. This is the only meta where retail feels they have a fighting chance.”
Going forward, Deutscher suggests several strategies to mitigate these issues. Exchanges can enforce better token distribution standards and prioritize larger community allocations. Additionally, adjusting the percentage of tokens unlocked at launch can help manage selling pressure more effectively.
“Even if insiders don’t force change, the market will eventually do so,” Deutscher argues. He suggests that exchanges should adopt strict criteria for listing new projects and be equally strict in delisting projects that fail to meet ongoing standards to preserve market integrity and liquidity.
In his closing remarks, Miles Deutscher hopes that his insights will foster better understanding and trigger a reassessment of current practices. “Decentralization is not the only issue, but it is certainly an important issue and one that needs to be discussed more openly to create a healthier cryptocurrency ecosystem.”
At press time, Ethereum (ETH) was trading at $3,562.
Featured image from Shutterstock, chart from TradingView.com