‘Money-hungry VCs’ are bad for token launches in the long term — Analyst

Profit-seeking venture capitalists (VCs) may have detrimental effects on the long-term sustainability and price trajectory of newly-launched cryptocurrencies.

Despite providing initial liquidity for altcoin launches, VCs often introduce substantial sell pressure that can harm the token’s long-term price performance. Popular crypto analyst Route 2 FI expressed this concern in an April 22 Substack post, stating:

“Permissionless token listing and money-hungry VCs are detrimental for the individual token’s long-term prospects. With around 100 new tokens launching every year, the existing ones become diluted. As of April 2024, inflows into altcoins appear more discerning, unable to counterbalance significant unlocks.”

Concerns with Fully Diluted Valuation (FDV) and Unlocking Schedules

One significant issue with current token launches is their initially high fully diluted valuation (FDV), promising sizable airdrop allocations for early adopters but accompanied by extensive unlocking schedules for early VC investors. According to Route 2 FI:

“I believe many new VC-backed coins (high FDV coins) will eventually experience significant sell-offs. This scenario can be leveraged in pair trading or hedging strategies.”

The total market capitalization of altcoins, excluding Bitcoin, reached $1.05 trillion, up 38% year-to-date from $760 billion at the start of 2024, according to TradingView data.

The issue of substantial VC unlocks lies in the lack of demand from crypto investors to absorb the significant increase in a coin’s circulating supply and the resulting selling pressure, as highlighted by the pseudonymous analyst:

“At some point, supply will outstrip demand, leading to a downward spiral due to massive inflation. Early buyers may become trapped, resulting in bearish sentiment, decreased Total Value Locked (TVL) in the protocol, potential departure of developers, and team members quitting.”

Is 2024 the End of Crypto Altseason?

Historically, altcoins have surged after Bitcoin reaches new highs, as profits from Bitcoin sales are reinvested in other cryptocurrencies. However, with over “300 decent projects” in existence, there may not be sufficient liquidity for all top altcoins to surge simultaneously, potentially signaling the end of the altcoin season trend. Route 2 FI commented:

“While altseason is often discussed, this time around, I anticipate a different scenario… Unless institutions or retail investors flood the market, it may devolve into a perpetual player-versus-player (PvP) struggle.”