On Series X, Miles Deutscher, a well-known figure in the field of crypto analysis, dissected what he sees as a critical flaw in the current altcoin market. Speaking to his many followers, Deutscher elaborated on the impact of the rapid increase in the number of new crypto tokens, an issue he believes is at the heart of the underperformance of altcoins in this cycle.
Crypto spreads
Since April 2024, the crypto landscape has seen the launch of more than a million new crypto tokens, a significant portion of these are memecoins created primarily on the Solana network. According to Deutscher, the ease of use of these tokens on the chain contributes to the increasing token count but highlights the deeper issue of market saturation and dilution.
Deutscher explains, “We now have 5.7 times the amount of crypto tokens than we did during the bull peak in 2021. This is the main reason why crypto is struggling this year, despite Bitcoin hitting a high.” He likens the over-issuance of new tokens to inflation, where “when the tokens are launched, the supply pressure increases in the market.”
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The analyst also sheds light on the dynamics of venture capital (VC) investments in the crypto space, noting the largest quarter of VC funding reached $ 12 billion in Q1 2022, just as the market began to change. Deutscher criticizes the timing and strategy of VCs, suggesting that although their injection of capital is important for project development, it often leads to market imbalances.
“VCs, like retail investors, are opportunists. Their investment time usually aims to increase profits instead of supporting the sustainable growth of the project, which contributes to the high rate in the market, “explains Deutscher. He continues to discuss the subsequent market effects, when the delay of projects is presented under negative conditions, only to flood the market when the mood turns, making it worse deterioration.
The constant introduction of new tokens not only depresses market capitalization but also affects investor confidence, especially among retail investors. Deutscher emphasizes that, “The skew towards private markets is one of the biggest and most damaging problems in crypto, especially compared to other markets such as equities and real estate.”
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This environment creates a barrier to new capital inflows and leaves retail investors feeling left out, a feeling exacerbated by high-profile failures like LUNA and FTX. Deutscher argues, “If retail investors feel like they can’t win, they won’t play the game, which is why memes dominate this year—it’s the only meta where retailers feel they have a fighting chance.”
Looking ahead, Deutscher proposes several strategies to mitigate these problems. Exchanges may enforce better token distribution standards and prioritize larger public shares. Additionally, adjusting the percentage of tokens open at launch can help manage sales pressure more effectively.
“Even if insiders don’t force change, the market will eventually,” Deutscher said. He suggests that exchanges should adopt stricter standards for listing new projects and be equally strict about delisting those that fail to meet ongoing criteria, thereby maintaining market integrity and funding.
In his closing remarks, Miles Deutscher hopes that his insight will promote a better understanding and cause a re-evaluation of current practices. “Dispersion is not the only problem, but it is a big problem—and something that needs to be discussed openly in order to develop a healthy crypto ecosystem.”
At press time, Ethereum (ETH) traded at $3,562.
Featured image from Shutterstock, chart from TradingView.com
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