Why did altcoins die collectively?

Author: Xiaoyun, currency market trader

In the past week, market fluctuations have been dramatic, and almost all fluctuations revolved around key macro data. First, the U.S. non-farm payrolls data on June 11 significantly exceeded expectations, causing Bitcoin to plummet by more than 5%; then, the U.S. CPI data on June 12 was 0.1% lower than expected, and Bitcoin subsequently rebounded sharply by more than 5%; finally , the dot plot chart released by the Federal Reserve on June 13 showed that the rate cut was lower than market expectations, and Bitcoin fell nearly 5% again. In just three days, the market experienced two rollercoasters, and many trend traders were repeatedly tricked by the main players. This phenomenon also basically verifies a point 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 surprising 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 expected, which was within a reasonable error range, the market still regarded this small difference as a major positive, which shows that the market has followed macro data to an almost pathological level. situation. The market's enthusiasm for macro data also shows that when the encryption narrative logic is lackluster, the market can only pin its hope of opening up valuation space on loose liquidity. Therefore, for leverage traders, every subsequent window of macro data needs to be very cautious.

Currently, the interest rate swap market shows that market participants expect the probability of the Federal Reserve to cut interest rates by 50 basis points within this year as high as 90%. However, there are significant differences in market opinions as to whether the first interest 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 of a September interest rate cut has been fluctuating wildly between 50% and 70%. In this context of unclear expectations, if the interest rate cut is implemented as scheduled in September, it will not only mean that the timing of policy easing will be brought forward, but also indicate that the intensity of the easing policy may exceed market expectations. (2-3 interest rate cuts) Of course, once expectations of an interest rate cut in September come to nothing, the market will also react negatively. However, as analyzed in the previous article, the author believes that the interest rate cut will most likely occur in September, but the market may still experience a strong washout before the interest rate cut.

Recently, the reasons for the absence of altcoins in the current bull market have been widely discussed in the market. However, few analyzes have focused on capital flows and explored why the money-making effect of altcoins has declined rapidly after 2021. Data from CoinMarketCap and TradingView show that Bitcoin’s market capitalization will grow from $33 billion in January 2023 to $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%. While Bitcoin is hitting new 2021 highs, altcoin market caps are also close to 85% of their 2021 peaks. However, a detailed analysis of the market value composition of altcoins shows that of the US$265 billion increase, approximately US$100 billion came from the lifting of restrictions on sales of tokens, and US$60 billion came from the issuance of new tokens. The real increase in market value was due to the increase in token prices. Just $105 billion. In other words, in the bull market of the past year or so, more than half of the monthly inflow into altcoins was taken up by the lifting of the ban on old coins and the issuance of new coins.

According to statistics from 10x Research and CoinGecko, in the next six months, the scale of altcoin unlocking is expected to reach 20 billion U.S. dollars, and there will be nearly 60 billion of altcoins every month. billion in new token issuance. This contradiction between dumped supply and limited demand will lead to increasingly serious liquidity difficulties in the altcoin market.

With so much money and so little money, it seems unrealistic to expect the market to repeat the altcoin bull market of 2021. Therefore, even if there is a bull market for altcoins in the future, it will most likely be a structural market.

Although the lifting of the ban and additional issuance are negative factors restricting the rise of altcoins, the $225 billion market value of the 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 will still have room to grow tenfold or even a hundredfold. In short, even if the market falls sharply, there is still an opportunity to buy high-quality altcoins at low prices.

When the market enters the stage of stock game, the right to speak and pricing will gradually be concentrated in the hands of groups with sufficient funds. In this round of altcoin frenzy, the biggest winners are undoubtedly PE and VC companies. They will continue to use the existing profit model: invest and incubate new projects, and then log on to exchanges to push up valuations and realize cash out. 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 currency market has been verified in BB, NOT, and IO respectively. ZK will most likely follow this pattern.

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