IN thread at Addressing his many fans, Deutscher detailed the impact of the rapid growth of novel crypto tokens, an issue that he believes is at the heart of altcoins’ impoverished performance this cycle.
The spread of cryptocurrencies
Since April 2024, over 1 million novel crypto tokens have appeared in the cryptocurrency landscape, a significant half of which are memecoins created primarily on the Solana network. According to Deutscher, the ease of deploying these tokens on-chain contributes to the inflated token count, but highlights a deeper problem of market saturation and dilution.
Deutscher explains: “We currently have 5.7 times more crypto tokens than during the 2021 bull run. This is the main reason why the cryptocurrency has struggled this year, even though Bitcoin has reached new all-time highs.” He compares the excessive issuance of novel tokens to inflation, where “the more tokens are launched, the greater the cumulative supply pressure on the market will be.”
The analyst also sheds lithe on the dynamics of venture capital (VC) investing in the crypto space, noting that the largest quarter of VC funding peaked at $12 billion in the first quarter of 2022, just as the market began to decline. Deutscher criticizes the timing and strategy of VC funds, suggesting that although their capital injection is necessary for the project’s development, it often leads to market imbalance.
“VCs, like retail investors, are opportunists. Their investment schedule is often aimed at maximizing returns rather than supporting project sustainability, which contributes to cyclical market peaks and troughs,” explains Deutscher. He continues to discuss the subsequent market impacts, where projects delay launches in unfavorable conditions, only to flood the market when sentiment changes, exacerbating dilution.
The constant introduction of novel tokens not only strains market liquidity but also affects investor confidence, especially among retail investors. Deutscher emphasizes: “The focus on private markets is one of the biggest and most damaging problems in cryptocurrencies, especially compared to other markets such as stocks and real estate.”
This environment creates a barrier to entry for novel liquidity and leaves retail investors feeling sidelined, a sentiment exacerbated by high-profile failures such as LUNA and FTX. Deutscher argues: “If retail investors feel they can’t win, they won’t play the game, and that’s why memes are dominating this year – it’s the only meta where retail feels like it has a fighting chance.”
Looking ahead, Deutscher suggests several strategies to mitigate these problems. Exchanges could enforce better token distribution standards and prioritize larger community allocations. Additionally, adjusting the percentage of tokens unlocked at launch can assist manage selling pressure more effectively.
“Even if insiders don’t force changes, the market will eventually,” Deutscher says. It suggests that exchanges should adopt stringent standards for listing novel projects and be equally stringent in delisting those that do not meet current criteria, thereby maintaining market integrity and liquidity.
In his concluding remarks, Miles Deutscher hopes that his insights will facilitate greater understanding and prompt a re-evaluation of current practices. “Dispersion is not the only problem, but it is certainly a serious one – and something that needs to be discussed more openly to support a healthier crypto ecosystem.”
At the time of publication, Ethereum (ETH) was trading at $3,562.
Featured image from Shutterstock, chart from TradingView.com
