there are too many altcoins and the number of altcoins continues to climb and that’s why they have been underperforming and it’s why they will continue to underperform at least on paper in practice most new altcoins have zero economic value and the supply of valuable altcoins hasn’t grown much since 2021 meanwhile regulatory changes could increase the demand for Els in 2025 and that’s why today we’re going to do a deep dive into the theory that there are too many altcoins separate the facts from the fiction and reveal the real reason why altcoins have been underperforming if you hold alts this is a video you cannot afford to miss let’s start by putting things into perspective according to June analytics almost 40 million tokens have been minted on major blockchains since 2021 mostly on Sal and this doesn’t even account for the millions of fungible and non-fungible tokens that have been minted on other blockchains such as cardono this exponential growth in the supply of new tokens has been cited as the primary reason why most altcoins have underperformed in the current crypto cycle the argument is basically that the number of new tokens has been increasing exponentially relative to the amount of new capital entering the market the result is that both both new and existing altcoins have experienced Less inflows on average which explains why most altcoins have underperformed in other words the altcoin market has become diluted meaning that the amount of liquidity that goes into each altcoin is much lower as I noted in the introduction however it’s more nuanced than this for starters most of the tokens that have been minted since 2021 have no economic value onchain analysis done by xuser 0x not Sue found that only 788 tokens on salana and 411 tokens on ethereum had economic value specifically tokens with liquidity of more than 100K trading volume of more than 100K and survived for more than 3 days this is consistent with historical data from coin gecko whereas coin Market capap appears to track almost every coin or token coin gecko continues to have a higher listing standard so to speak as you can see the number of cryptos tracked by coin gecko was around 10,600 in November 2021 at the time of shooting it’s around 17,200 an increase of around 6,600 or roughly 60% in theory then this means that the supply of new crypto competing for Capital hasn’t grown by that much in recent years at the same same time it means that an increase in demand I.E investment of just 60% would be enough for altcoins to experience the Epic pumps they saw in Prior Cycles all else being equal of course but again it’s more nuanced than this you see most of the tokens that have been launched over the last few years were launched on decentralized exchanges or dexes now for those who don’t know launching a new token on a DEX involves pooling or pairing that new token with the native coin of that blockchain for example almost all the new tokens launched on sana’s dexas were pulled with soul the Practical effect of this was that it created demand for soul not just to launch any new tokens but also to trade them anyone who wanted to buy a new token launched on a DEX had to buy soul to do it obviously this is why the mem coin craze was so bullish for salana every mem coin launched or traded fundament Ally increased demand for soul what’s not so obvious though is that this Dynamic results in lots of liquidity being drained a large number of low value tokens still has a dilutive effect on the market if we assume that the average new token pair on a DEX launched with $100 of liquidity or received $100 of speculative investment 40 million tokens works out to around $4 billion that was essentially thrown into into the void instead of into quality altcoins but I’ll reiterate that it’s much more nuanced than this and by the guessed the assumption that every new token that launched effectively siphoned away $100 of liquidity is false in reality money in the crypto Market is Distributing the same way it is in every other asset class a parito distribution where the biggest crypto receives the most inflows the second biggest receives less and the third receives even less than that and so on and so on this is something that was underscored by another xuser named 0x aporia and they explained the false assumption perfectly quote a common mistake in the dilution argument is the assumption that liquidity and detention are evenly or near evenly distributed across tokens which is Far From Reality as you can see most of crypto’s liquidity and trading volume is concentrated in Bitcoin with ethereum in a far second and xrp in an even further third and so on and so on it’s worth noting that this is a screenshot from 2023 but it’s still accurate and you can see this Yourself by just looking at the crypto rankings the key takeaway is that even though tens of Millions of new cryptos have been launched over the last few years the overwhelming majority of capital that goes into the crypto Market still Finds Its way into the same set of cryptos and this begs the question of why this specific set of cryptos continues to get these inflows and why some cryptos in this specific set have underperformed despite this fact namely eth to find the answer all we need to do is walk through exact exactly how and why money moves through the crypto Market imagine the crypto Market starts pumping it starts to make the news this gets investors interested they check out websites like coin market cap and coin gecko to see all the cryptos available of course the first two cryptos they will see are Bitcoin and ethereum suppose Bitcoin is hitting 100K many investors will see that price tag and think ah I must have missed that rally Bitcoin is too expensive right now for reference in tradire you cannot buy fractions of a share you need to buy the whole share and this is of course not the case in crypto you can buy a fraction of a BTC but many investors well they don’t understand this the ones that do understand this or don’t care about the price tag will buy BTC in part because of the fomo and in part because BTC is the most liquid crypto meaning it’s easy to buy and sell large amounts of it without affecting the price logically bigger investors require more liquidity and the more that big investors invest the more liquid that BTC becomes allowing for bigger investors to buy and so on and so on now most of the investors who think they missed the Bitcoin rally and who think that BTC is too expensive will turn their attention to ethereum believe it or not but this is where the altcoin dilution begins and that’s because investors who take the time to learn about ethereum or who know what it is will understand that ethereum has lots of competition such as salana and many May opt to invest in these competitors instead by contrast Bitcoin technically has no competition and if you think about it this is one of the biggest reasons why BTC has remained the biggest another big reason is the fact that Bitcoin has a narrative that’s easy for both institutional and Retail investors to understand and invest in BTC is digital go and this ties into the third crypto on the list and where things get interesting to quickly recap crypto is pumping and it’s all over the news and this gets people interested so they check out websites like coin market cap to see all the cryptos available many will see Bitcoin and think they missed the boat from this group most will turn to other altcoins starting with ethereum as its second on the list the third crypto on the list is xrp and unlike BTC and eth xrp has a very low price tag this gives any interested investors the impression that xrp has more room to grow relative to BTC and eth even though this is technically incorrect it’s the market cap of a crypto that determines how big it can grow not its price tag but again most investors don’t understand this For Better or Worse put differently xrp comes across as being a more accessible investment to any new investors entering the crypto market and the best part is that it actually is more accessible because xrp has been around for so long it’s listed everywhere and very easy to buy as a cherry on top it has a powerful narrative that likewise has next to no competition to be used as a bridge currency for international transfers and this is precisely why xrp is so large and so liquid and it’s why xrp is one of the few altcoins that have performed so well this cycle it’s simply because xrp is visible accessible both practically in terms of being able to buy and theoretically in terms of its assumed returns and also it has a very strong narrative but this begs the question of how smaller altcoins will get noticed even if they’re not on the front page of coin market cap to find the answer all we need to do is walk through exactly how and why altcoins like xrp got so big to begin with after all they were all small altcoins when they started I’ll use Soul as an example it’s late 2020 salana has a market cap of around $7 to $80 million and a price of around $1.5 and this means it’s buried somewhere past the 10th page of websites like coin market cap not only that but Soul isn’t listed on any dexes just a handful of centralized exchanges since it’s a new coin fast forward to January 2021 Souls price suddenly doubles to over $3 naturally this gets investors interested whereas a pump in the crypto Market gets regular investors interested in crypto more broadly a pump in a small cap altcoin will get crypto investors interested in that altcoin specifically it’s a much smaller cohort but uh I assure you they do exist jokes aside a small percentage of people who are obsessed with crypto noticed the soul pump and started doing research into what salana was all about after reading about how it seeks to compete with ethereum using a brand new consensus mechanism that makes salana faster and cheaper a few crypto investors bought understanding that Soul was still very small relative to how big it could become if successful because soul is or rather was still relatively small the small amount of buying by a small group of crypto investors causes Soul’s price to pump which gets more crypto investors interested causing soul to pump even more at this stage some early investors in Soul start to sell especially because Soul had a massive Supply unlock in early 2021 this sell pressure from insiders caused soul to crash in February and March 2021 now if Soul had just been a meme coin then the crash that it experienced then would have probably been the end of it that’s just because there wouldn’t have been a strong narrative for investors to justify aggressively buying the dip but because salana did have a strong narrative as a so-called ethereum killer many investors bought that first Soul dip and even more investors bought the dip after Soul crashed again in the summer of 2021 because even with the summer dip Soul’s price was higher than it had been in the spring crash by the Autumn of 2021 Soul had stopped started rallying again and it rallied by more than 10 times in the span of just a few months even though this rally was largely due to new demand as salana was on the front page of coin market cap by that point a large part of it was also due to the shortage of Supply a byproduct of the fact that most people holding Soul after two pumps and dumps were True Believers in the narrative the key takeaway in this case is that the strength of a crypto narrative is ultimately what determines how much liquidity it receives and more importantly how much liquidity it retains the stronger the narrative the more people will buy when they first see it rallying the more people will buy the dip when it crashes and fewer people will sell the rip when it goes vertical but once again there is Nuance here to recap when the crypto Market pumps new investors will go to websites like coin market cap to see which cryptos they want to buy most of this money flows into the top cryptos based on a combination of their accessibility perceived potential and the strength of their narrative notably only the largest cryptos are liquid enough for large investors and hence why the largest cryptos tend to keep getting bigger when midcap or small altcoins pump existing investors in the crypto Market will take notice and research what the altcoin is all about before buying it the stronger the narrative the more these existing crypto investors will buy when they first see it pumping the more they will buy the dip when it crashes and the less likely they will be to sell when it starts going parabolic creating sustainable growth however this all assumes that most new investors are still going to websites like coin market cap to see which cryptos they want to buy and assumes that most existing investors in the crypto Market will put in the time and effort to research new altcoins when they pump both assumptions appear to be false so far it seems that most new investors have been finding out about crypto via social media websites like uh Tik Tok and X as always most of this information has been coming from crypto influencers looking to pump and dump on their audience and the best way for them to do that is to use tokens on dexes where it’s easier for them to do a pump and dump and to hide their tracks and evade regulatory scrutiny this is more significant than you think for context in Prior Cycles most cryptos were purchased via centralized exchanges or sexes in this cycle however it appears that most cryptos are being purchased via dexes evidenced by the fact that crypto wallets which offer Dex swaps like Sal’s Phantom wallet have been flipping sex apps like coinbase in Mobile app stores and it’s a significant structural change new investors finding out about crypto via social media websites has resulted in them buying lowquality altcoins and meme coins on dexes in turn this has incentivized many experienced crypto investors to follow suit because most of the new capital is flowing into these cryptos and this has resulted in exponential growth for assets like mean coins and has made it harder for small cap altcoins to get that initial boost as we mentioned in our recent video about why altcoins are underperforming the fact that most new money is flowing into meme coins on salana is likely just a consequence of the fact that salana is is a lowcost high-speed chain with a good ux and the meme coins are the dominant asset class on its chain it could have just as easily been something else like nfts on another chain which is sobering to consider the good news is that both new and experienced crypto investors have finally lost enough money to assets like mem coins to understand that memes are not the same as narratives the bad news is that many new investors have likely been permanently turned off of crypto and experienced crypto investors have likely spent a substantial amount of their money speculating on memes instead of accumulating altcoins but as you might have guessed there is yet more Nuance here let’s go back to the start of the video to refresh your memory almost 40 million tokens have been created since 2021 but most have zero economic value onchain analysis and historical archives suggest that the number of cryptos with actual economic value has only grown by a few thousand since 2021 as I mentioned earlier the idea that there are too many altcoins implicitly assumes that the increase in demand I.E new investment will be smaller than the amount of new altcoins given the analysis I just gave about most of the new money going into crypto being shilled on social media you might think that even if there’s an increase in new investment it will keep going into meme coins and other such Tok tokens and this is where things get truly interesting because the continuation of the current trend of tokens like mcoins dominating also implicitly assumes two things first it assumes that new investment into crypto will continue to come through the route that it has over the last year to be exact it assumes that most new investors will continue to rely on social media to inform their investment decisions second and more importantly it assumes ass that the structure of the crypto Market will stay the same way it is now news flash both of these assumptions go hand in hand consider a scenario where a spot Litecoin ETF is approved something that has a 90% probability of happening according to Bloomberg analysts it goes without saying that this would cause ltc’s price to pump a lot in the short term it would simultaneously open the door to new investors who were previously unable to invest in LTC for whatever reason this could cause LTC to surprise to the upside and history suggests there’s a good chance it will case in point grayscales Litecoin trust traded at a staggering 18 times premium during the previous cycle moreover Litecoin is an older crypto just like xrp and this means that it has lots of exchange listings and Integrations as a fun fact Fidelity one of the world’s largest asset managers added added Litecoin to its crypto offerings last year making LTC one of the only three cryptos it offers its clients alongside BTC and eth now visualize exactly how and why new investors would allocate to LTC given the change in Market structure older and wealthier investors would likely learn about Litecoin through their bank or broker thanks to litecoin’s ETFs and Fidelity LTC support Litecoin also happens to have a narrative that they could easily understand whereas Bitcoin is digital gold Litecoin is Digital Silver and this will cause LTC to pump a lot and that would create lots of buzz on social media where younger and less wealthy investors get their information from and this highlights another misunderstanding about the recent Trends we’ve seen in the altcoin market most retail investors will buy whatever is pumping so long as it’s visible accessible and gives them the ression they will get rich if it gets big Litecoin checks every box in this regard because many investors both retail and institutions would believe that it’s possible that LTC could become big be it by Price or market cap this would be enough to not only drive substantial investment but lots of dip buying and hodling which is key I can already hear you asking but what about all the other altcoins does that mean they will need to to get spot ETFs to pump thankfully the answer is no because liquidity flows into crypto in multiple ways broadly speaking there are two externally via direct investment and internally via borrowing now for those unfamiliar crypto whales will often borrow against their Holdings to speculate on altcoins so again visualize exactly how and why this new onchain capital will flow imagine you an eth whale and E starts pumping because of the approval of Stak spot ethereum ETF something that’s made possible by the change in crypto regulations in the US seeing the new uptrend you decide to use your eth as collateral to borrow stable coins in defi to invest in altcoins sure you could speculate on Meme coins but most of them are not very liquid and you want to invest a sizable amount of money in a crypto that you’ll be able to easily sell if it pulls a 10x or a 20x and the only cryptos that check this box are blue chip altcoins wouldn’t you know most of them exist on ethereum and that means you can just head on over to Unis swap with your usdc and buy the altcoin you want but maybe you’re not interested in Blue Chip altcoins on ethereum maybe you want to invest in some other new emerging blue chip altcoin on a newer blockchain like suei you’re in luck because cross chain interoperability is 100 times better now than it was in in 2021 you can Bridge your usdc to sui using circles cctp the altcoin you do eventually buy might pump a bit but that’s fine because you’ll wait until sex listings to take a profit as with Trad flows these D5 flows will cause these altcoins to pump creating lots of buzz on social media and resulting in investment from Young and less wealthy crypto investors be they new or experienced if the narrative is strong they will buy a lot when they see it first pump they will buy more during the dip and they’ll be hesitant to sell when it goes parabolic because they’re convinced it’s going to go higher and if you think that retail is never coming back or is already here think again depending on your Source only 20 to 40% of Americans have invested into crypto with as much as 60% saying they don’t invest because they don’t trust it and this is likely to change as better regulations legitimize the industry the come could be a level of crypto ownership that’s on par with stocks which stands at around 60% in the USA and this means that the number of crypto investors could increase by anywhere between 50% to three times depending on what the real number of us crypto investors is and this demand should be more than enough to offset the supply of new altcoins that can bring back the good old altcoin Discovery dynamic in some then this Dynamic of capital finding its way into quality altcoins isn’t dead it’s waiting to be unlocked and chances are that it will be at some point because better crypto regulations are the key and they’re coming make no mistake there’s no guarantee that altcoins will recover but if they do you need to know exactly how and why liquidity will flow into the crypto market and which altcoins will benefit enjoyed that video you can check out our latest one right over here and if you’re not subscribed to the channel yet you can do that right over there it’s me Nick I’ll see you guys next time [Music]
