After a tremendous run-up from October to March, the cryptocurrency market is currently going through a good consolidation, at least for investors who bought the two biggest digital assets.


However, this is a harsh correction for people who own smaller cryptocurrencies, with the mood in crypto social media circles akin to bear market despondency.

A few prominent cryptocurrencies, such as solana (SOL) and avalanche (AVAX), have dropped 40% to 50% from their March peaks, while layer-1 challengers, sui (SUI) and aptos (APT), have plummeted 60% to 70%. Meanwhile, bitcoin (BTC) and Ethereum's ether (ETH) are only 15% off their yearly highs.


The phrase "altcoins," which refers to cryptocurrencies other than the most well-known ones like bitcoin and ether, was weakening due to a combination of factors including seasonal trends, lack of new capital entering the market, and selling pressure from venture funds with expanding supply token unlocks.

Due to unlocks and distributions planned years in advance, the quantity of tokens for several altcoins is continuously dilutionary. This is due to the fact that the majority of tokens are either reserved for grants and ecosystem growth, purchased by early investors, or locked up.

For instance, despite a significant increase in supply, the market capitalization of the Ethereum layer-2 network Arbitrum's token (ARB) has increased from $1 billion to $2.5 billion, yet it is almost back to its all-time low price from September of last year.


Another illustration is solana, whose supply is increasing daily by 75,000 tokens, or about $10 million at today's exchange rates.


Quinn Thomson, the founder of the cryptocurrency hedge fund Lekker Capital, stated in an X post that "crypto, and in particular altcoins, have the opposite – a constant stream of sell pressure, compared to equities which have a constant passive bid from ETF inflows and bond buybacks."


Venture capital funds are a major source of selling pressure as they realize returns on their early investments in ventures that have been launched in recent years.


According to Markus Thielen, founder of 10x Research, "venture capital funds invested $13 billion in Q1 2022, while the market turned into a steep bear market" in a report released earlier this week.



"Those funds are now under pressure from their investors to return capital as artificial intelligence (AI) has become a hotter theme."


There isn't enough demand to counteract this supply shock when the market's desire for the more speculative, smaller crypto assets is waning and trade volumes are declining, as they have been over the past few months.



The market value of stablecoins, which are mostly employed as a middleman for cryptocurrency trading, indicates that liquidity inflows to the crypto markets have likewise stopped or even reversed during the previous few weeks.


According to TradingView statistics, the overall market capitalization of the four biggest stablecoins—USDT by Tether, USDC by Circle, FDUSD by First Digital, and DAI by Maker—has been stagnant since April following a $30 billion expansion earlier this year.


In an X post, partner at Anagram David Shuttleworth noted that stablecoin holdings on exchanges, or what traders and investors refer to as dry powder, dropped $4 billion to the lowest level since February, citing Nansen data.


"This has particularly bad implications for tokens with large upcoming unlocks as well as new [tokens] and airdrop programs," Shuttleworth stated.


The recently introduced tokens of layer-2 network Starknet (STRK), yield-bearing synthetic dollar protocol Ethena {{ENA}}, and blockchain bridge Wormhole {{W}} have all seen price declines of between 60% and 70% from their peak and will have to contend with the distribution of billions of dollars' worth of tokens in the years to come.



Additionally, seasonal tendencies have been negative for smaller tokens, with June often seeing a decline in altcoin prices.


According to TradingView statistics, over the previous six years, there has been a fall in the total market value of cryptocurrency assets—as measured by the TOTAL.3 metric—that do not include Bitcoin and Ethereum.



With TOTAL.3 down 11% so far this month, it looks like it won't be an exception either.


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