Why did altcoins die en masse?

In the past week, the market volatility was full of drama, and almost all of the volatility revolved around key macro data. First, the US non-farm payroll data on June 11 exceeded expectations by a large margin, causing Bitcoin to plummet by more than 5%; then, the US CPI data on June 12 was 0.1% lower than expected, and Bitcoin rebounded sharply by more than 5%; finally, the dot plot released by the Federal Reserve on June 13 showed that the interest rate cut was lower than market expectations, and Bitcoin fell again by nearly 5%. In just three days, the market experienced two roller coaster markets, and many trend traders were repeatedly played by the main force. This phenomenon also basically verifies a point of view in the previous article: whether to cut interest rates in September has become one of the most important game directions for funds in the second half of the year.

 Among the three key macroeconomic trading nodes, the most unexpected market reaction occurred after the release of inflation data on June 12. Although the actual consumer price index (CPI) was only 0.1% lower than the expected value, which is within the reasonable error range, the market still regarded this small difference as a major positive, which shows that the market's follow-up of macro data has reached an almost pathological level. The market's enthusiasm for macro data also shows that in the absence of good crypto narrative logic, the market can only pin its hopes on liquidity easing to open up valuation space. Therefore, for leveraged traders, each window of macro data in the future needs to be very cautious.

 Currently, the interest rate swap market shows that market participants expect the Federal Reserve to cut interest rates by 50 basis points this year with a probability of up to 90%. However, there are significant differences in market opinions on whether the first rate cut will be implemented in September. In the past week, with the release of a series of macro data, the swap market's pricing for the September rate cut has also fluctuated sharply between 50% and 70%. Against the backdrop of such unclear expectations, if the rate cut is implemented as scheduled in September, it will not only mean that the timing of policy easing is advanced, but also indicate that the intensity of the easing policy may exceed market expectations. (2-3 rate cuts) Of course, once the expectation of a rate cut in September fails, the market will also react negatively. However, as analyzed in the previous article, the author believes that there is a high probability that the rate cut will occur in September, but the market may still experience a strong wash before the rate cut.

Recently, the market has widely discussed the reasons for the absence of altcoins in the current bull market. However, few analyses have focused on the flow of funds and explored why the money-making effect of altcoins has declined rapidly after 2021. According to data from CoinMarketCap and TradingView, the market value of Bitcoin has increased from US$33 billion in January 2023 to US$1.4 trillion in 2024, an increase of 324%. During the same period, the market value of altcoins increased from US$85 billion to US$350 billion, an increase of 3.11%. Although Bitcoin has set a new high in 2021, the market value of altcoins is close to 85% of the peak in 2021. However, a detailed analysis of the composition of the market value of altcoins shows that of the US$265 billion increase, about US$100 billion comes from the lifting of the ban on restricted tokens, US$60 billion comes from the issuance of new tokens, and the actual market value increase due to the increase in token prices is only US$105 billion. In other words, in the bull market over the past year or so, more than half of the monthly increase in altcoins has been occupied by the lifting of the ban on old coins and the issuance of new coins.

According to data from 10x Research and CoinGecko, the scale of altcoin unblocking is expected to reach US$20 billion in the next six months, and nearly US$6 billion in new tokens will be issued each month. The contradiction between this dumping supply and limited demand will lead to an increasingly serious liquidity dilemma in the altcoin market.

With more monks than porridge, it seems unrealistic to expect the market to reproduce the altcoin bull market in 2021. Therefore, even if there is a bull market in altcoins in the future, it is likely to be a structural market.

Although the lifting of restrictions and additional issuance are unfavorable factors that restrict the rise of altcoins, the $225 billion altcoin market is still insignificant for the blockchain, which is still in a highly prosperous stage. In the future, projects that can be driven by endogenous growth still have room for ten or even a hundred times of growth. In short, a sharp drop in the market is still an opportunity to buy high-quality altcoins at a low price.

When the market enters the stage of stock game, the right to speak and the right to price will gradually be concentrated in the hands of groups with sufficient funds. In this round of altcoin craze, the biggest winners are undoubtedly PE and VC companies. They will continue to adopt the existing profit model: investing in and incubating new projects, and then pushing up valuations and realizing cash by logging on to exchanges. Therefore, short-term trading opportunities will still appear in new coins or sub-new coins. In the past month, the second wave of Binance's new coins has been verified in BB, NOT, and IO, and it is believed that ZK will most likely follow this rule.