Factors Driving the Decline in Altcoin Prices
A confluence of factors has contributed to the sharp decline in altcoin prices, including constant token supply dilution, selling pressure from venture funds, lack of fresh capital inflows into the crypto market, and seasonal trends.
Significant Corrections in Major Altcoins
Crypto majors such as Solana (SOL), Avalanche (AVAX), Aptos (APT), and Sui (SUI) have seen corrections ranging from 40% to 70% over recent months. In contrast, Bitcoin (BTC) and Ethereum (ETH) are down only 15% from their yearly highs. This disparity has weighed heavily on altcoin sentiment.
Venture Funds and Token Unlocks
Venture funds have been under pressure to sell tokens to realize profits on their investments, further contributing to the decline. Markus Thielen of 10x Research noted that these funds are now under pressure to return capital, especially as the AI sector gains traction. The lack of new capital inflows exacerbates the situation, particularly for tokens with large upcoming unlocks and new airdrop programs.
Dilution of Token Supply
Many altcoins face a continuously diluting supply due to scheduled unlocks and distributions. This dilution puts constant selling pressure on the market. For example, the Ethereum layer-2 network Arbitrum (ARB) has seen its supply inflate significantly, even as its market capitalization has increased. Similarly, Solana’s supply is growing by 75,000 tokens daily, worth around $10 million at current prices.
Lack of Fresh Inflows and Seasonal Trends
Liquidity inflows into the crypto market have stalled, as evidenced by the stable market capitalization of major stablecoins since April. This stagnation has significant implications for tokens with large upcoming unlocks and new tokens, as noted by David Shuttleworth, a partner at Anagram. He highlighted that stablecoin balances on exchanges have decreased, reducing the available capital for trading and investing.
Seasonal Trends and Market Sentiment
Seasonal trends have also been bearish for smaller tokens, with June historically being a down month for altcoins. TradingView data shows that the aggregated market cap for crypto assets excluding BTC and ETH (tracked by the TOTAL.3 metric) has declined every June for the past six years. This trend continues this year, with TOTAL.3 down 11% to date.
Conclusion
The altcoin market is undergoing a severe correction driven by multiple factors, including token supply dilution, venture fund selling, lack of new capital inflows, and unfavorable seasonal trends. While BTC and ETH remain relatively stable, smaller cryptocurrencies face significant challenges, leading to a sharp decline in their prices and investor sentiment.
