💰💰💰Increasing Numbers of Cryptocurrencies
More over one million new crypto tokens have entered circulation since April 2024, with the Solana network accounting for the vast majority of these tokens. A significant portion, about 50%, are memecoins. Deutscher claims that the inflated token count is a result of the ease of deploying these tokens on-chain, which in turn draws attention to the more fundamental problem of market saturation and dilution.
The quantity of crypto tokens we have currently is 5.7% more than we had at the top bull in 2021, according to Deutscher. Despite Bitcoin's record-breaking performance, this is a key reason why the cryptocurrency market has been underperforming this year. "The more tokens that launch, the more cumulative supply pressure on the market," he says, drawing a parallel between inflation and the mass production of new tokens.
Noting that the crypto industry's greatest quarter for VC financing peaked at $12 billion in Q1 2022, just when the market started to turn negative, the analyst also provides insight into the characteristics of VC investments in the field. While venture capitalists' funding is crucial for project development, Deutscher argues that their timing and tactics can cause market imbalances.
Similar to individual investors, venture capitalists seize opportunities when they arise. Deutscher says that investors' focus on short-term gains at the expense of long-term project growth causes market cyclical peaks and valleys. He elaborates on the ripple effects on the market, explaining how projects would postpone debuts when circumstances are unfavourable, then flood the market when mood changes, further diluting the original investment.
Investor confidence, particularly among retail investors, is impacted by the continual introduction of new tokens, which strains market liquidity. with contrast to other markets, like as stocks and real estate, Deutscher argues that "the skew towards private markets is one of the biggest and most damaging issues in crypto."
