Original Title: Some thoughts about altcoins

Original Author: ROUTE 2 FI

Original Compilation: Frost, BlockBeats

Editor's Note: This article explores the views on "altcoin season" and high FDV tokens from an investor's perspective, suggesting that some hedging strategies can be used to profit.

We have heard a lot about "altcoin season," but this time I think the situation will be different. We are always used to hearing, "Under the right conditions, every token will rise." But is that true?

Keep in mind that there are many more tokens with "utility" in the market today than in 2021. Now, 3-5 "quality" tokens are added to the market every week, and everyone seems happy. But ask yourself, who will buy all these tokens? Unless institutions or retail investors flood in, this will just be an eternal PvP.

A recent example is the Wormhole airdrop. Launched with a valuation of $10 billion. Now ask yourself, why would you want to own it? Other than pure luck, I see no other reason.

I believe that when BTC trends down and altcoins start to move more freely, there will be a few altcoins that perform poorly. Not everything is as people are used to. The number of people in the cryptocurrency industry is greater than in the previous cycle, but people are smarter now. I think it may be a mistake to blindly assume that there will be sector rotation as we have been accustomed to over the past six months. Thiccy states that the altcoin sector has increased its supply by $20 billion this year through unlocks and staking rewards. At these prices, the daily inflation of altcoins is $250 million. From the beginning of the year to now, the market cap of altcoins has increased by about $200 million, a 53% increase, while BTC has risen by 53% and Ethereum by 45%.

As more projects issue tokens, the growth rate of FDV has outpaced circulating supply, increasing by about 70% year-to-date. The price difference between FDV and circulating supply (representing the amount of future supply that will hit the market) has increased by over $150 billion this year. As the inflow of funds into mainstream coins slows, the proportion of daily altcoin supply becomes increasingly apparent. The more I learn about trading, the more I realize that tactically shorting altcoins is a +EV behavior, but nakedly shorting altcoins in an uptrend can be dangerous.

In any case, the total market cap of altcoins is steadily increasing due to the constant launch of new tokens and new supply entering the market.

The example above includes some high market cap/FDV tokens. Take a look at WLD, which has a market cap of $1 billion but an FDV of $64 billion. What does this mean?

It means that WLD will continuously supply the market in the future. Starting in July 2024, they will begin a massive sell-off, with $6 million worth of WLD tokens hitting the market daily. For context, there are currently $181 million worth of WLD tokens in circulation.

Even if you're not a rocket scientist, you can understand that this is extremely pessimistic. It's easy to see through a basic supply and demand curve that when this supply hits the market, it will be hard to maintain the price of WLD. Who will buy $6 million worth of WLD tokens every day?

Does this mean being bearish on altcoins?

Not necessarily, it just means that I think most new VC scam coins (high FDV coins) will eventually be dumped heavily. You can take advantage of this in pair trading or if you want to hedge.

Right now, before the halving, it makes sense to go long on BTC and short weak tokens. For example, $STRK, $APE, $BOME, $ADA, $CRV, $XRP. Alternatively, if altcoins are performing better than the market overall, you can trade these weak altcoins against strong ones: currently strong altcoins include $ENA, $TON, $FTM, $PENDLE. However, market momentum changes every moment, and this is not a suggestion to immediately go long/short these tokens.

The benefit of Memecoins is that they are actually one of the few remaining honest tokens. Look at $WIF, $PEPE, $DOGE, etc. The circulating supply and total supply are the same. There are no massive unlocks; it's just a battle between players.