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Cryptocurrency News Articles

Venture Capitalists' Profit-Seeking Undermines Sustainability of Altcoins

Apr 23, 2024 at 11:00 pm

Crypto analyst Route 2 FL highlights concerns regarding insufficient inflows into altcoins, unable to offset significant token unlocks and venture capital (VC) selling pressure. The analyst emphasizes that profit-chasing VCs are undermining the long-term sustainability of new cryptocurrencies by introducing increased liquidity that ultimately hurts tokens' price action in the long run.

Venture Capitalists' Profit-Seeking Undermines Sustainability of Altcoins

Venture Capitalists' Profit-Chasing Hampering Sustainability of Altcoins

Recent analysis from renowned crypto analyst Route 2 FL reveals a concerning trend in the altcoin market. As the influx of venture capital (VC) funds fuels the launch of numerous new tokens, the long-term viability of these projects is being compromised by the immense sell pressure exerted by these profit-chasing entities.

Unbridled VC Influence Undermining Token Valuations

Route 2 FL warns that VCs are introducing substantial sell pressure that adversely impacts the price action of newly launched tokens. The analyst highlights the perilous combination of permissionless token listing and the presence of profit-driven VCs, a situation that threatens the stability of these tokens.

According to the analyst, the issuance of over 100 new tokens annually dilutes the value of existing projects. In April 2024, while altcoins experienced selective inflows, these funds were insufficient to offset the substantial token unlocks and VC sell-offs.

Fully Diluted Valuations: A Trap for Investors

Route 2 FL raises concerns about the fully diluted valuation (FDV) metric, which is often used to determine the potential market capitalization of a token. The analyst argues that this metric is misleading, as it presents a false picture of a token's true value.

Many new tokens promise extensive airdrops to early adopters, which are often accompanied by protracted unlocking schedules for VC investors. This mechanism, argues Route 2 FL, leads to inflated valuations that are not supported by the actual market demand for the token. As a result, most new tokens experience significant price declines shortly after their launch.

Money-Hungry VCs Fueling Bearish Sentiment

Route 2 FL's criticism of profit-chasing VCs coincides with a period of bearish sentiment in the altcoin market. Despite a 38% year-to-date rally in the total value of altcoins, market demand remains sluggish.

The analyst contends that the supply of tokens often outstrips demand due to massive VC unlocks. This oversupply leads to a downward spiral in token prices, eroding investor confidence. Early buyers often face heavy losses, leaving a trail of disillusioned token holders.

Impact on Ecosystem Health

The adverse effects of VC-driven sell pressure extend beyond price declines. The analyst observes that inflation resulting from excessive token issuance can erode the total value locked (TVL) within altcoin protocols. This decline in TVL often demoralizes team members and developers, who may abandon projects in search of greener pastures.

Altseason Prospects Dim

Route 2 FL casts doubt on the likelihood of a sustained altseason in the current market cycle. Unlike previous cycles, the analyst notes that there appears to be insufficient liquidity to fuel a broad rally across all altcoins. The analyst questions who will purchase the vast number of tokens being released if institutions and retail investors do not embrace them en masse.

Conclusion

The analysis by Route 2 FL serves as a stark warning about the negative impact that profit-chasing venture capitalists can have on the long-term viability of altcoin projects. The analyst urges investors to exercise caution in assessing token valuations and to be wary of excessive sell pressure from VC investors. The altcoin market is in dire need of a fundamental shift towards projects that are driven by utility and long-term sustainability, rather than short-term profit-seeking.

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