Why did altcoins collectively perish?

Author: Xiaoyun, Cryptocurrency Trader

In the past week, the market volatility has been dramatic, with almost all fluctuations revolving around key macroeconomic data. First, on June 11, the U.S. non-farm payroll data significantly exceeded expectations, triggering a plunge in Bitcoin of over 5%; then, on June 12, the U.S. CPI data came in 0.1% below expectations, leading to a sharp rebound in Bitcoin of over 5%; finally, on June 13, the Fed's dot plot indicated that the rate cut would be less than the market expected, causing Bitcoin to drop again by nearly 5%. In just three days, the market experienced two rollercoaster rides, with many trend traders being repeatedly toyed with by the main forces. This phenomenon also essentially validates a point made in the previous article: whether there will be a rate cut in September has become one of the most important betting directions for capital in the second half of the year.

Among the three key macroeconomic trading nodes, the most surprising market reaction occurred after the inflation data was released on June 12. Although the actual Consumer Price Index (CPI) was only 0.1% lower than expected, which falls within a reasonable margin of error, the market still viewed this slight difference as a significant positive, indicating that the market's obsession with macro data has reached an almost pathological level. Furthermore, the market's fervor for macro data suggests that, in the absence of compelling narratives in the crypto space, the market can only pin its hopes for opening up valuation space on liquidity easing. Therefore, for leveraged traders, every upcoming macro data window requires extreme caution.

Currently, the interest rate swap market indicates that market participants expect a 50 basis point rate cut from the Fed within this year, with a probability as high as 90%. However, there is significant divergence in market opinions regarding whether the first rate cut will be implemented in September. Over the past week, with the release of a series of macro data, the pricing for a September rate cut in the swap market has fluctuated violently between 50% and 70%. Against this backdrop of unclear expectations, if a rate cut is implemented as scheduled in September, it would not only mean an earlier timing for policy easing but also suggest that the extent of the easing may exceed market expectations (2-3 rate cuts). Of course, if the expectations for a September rate cut fall through, the market will similarly react negatively. However, as analyzed in previous articles, the author believes that a rate cut is likely to occur in September, although the market may still experience a strong washout before the rate cut.

Recently, there has been widespread discussion in the market about the reasons for the absence of altcoins in the current bull market. However, few analyses have focused on capital flows to explore why the profit effect of altcoins has rapidly declined since 2021. Data from CoinMarketCap and TradingView shows that Bitcoin's market capitalization grew from $433 billion in January 2023 to $1.4 trillion in 2024, an increase of 324%. During the same period, the market capitalization of altcoins rose from $85 billion to $350 billion, an increase of 311%. While Bitcoin has set a new high since 2021, the market capitalization of altcoins is also close to 85% of its 2021 peak. However, a detailed analysis of the composition of altcoin market capitalization reveals that of the $265 billion increase, approximately $100 billion came from the unlocking of restricted tokens, $60 billion from new token issuances, and only $105 billion from actual price increases of tokens. In other words, more than half of the incremental inflow into altcoins over the past year has been absorbed by the unlocking of old coins and the issuance of new coins.

According to data from 10x Research and CoinGecko, the unlocking scale of altcoins is expected to reach $20 billion within the next six months, and nearly $6 billion in new token issuance will occur each month. This contradiction between a dumping supply and limited demand will lead to an increasingly severe liquidity dilemma in the altcoin market.

In a situation where there are more participants than opportunities, expecting the market to replicate the altcoin bull market of 2021 seems unrealistic. Therefore, even if an altcoin bull market occurs in the future, it is likely to be a structural market.

Although unlocking and issuance are unfavorable factors restricting the rise of altcoins, the $225 billion market capitalization of altcoins remains insignificant for the blockchain sector, which is still in a highly prosperous phase. In the future, projects that can be driven by endogenous growth still have the potential for tenfold or even hundredfold growth. In summary, significant market declines still present opportunities to accumulate quality altcoins at low prices.

As the market shifts into a phase of stock game, the power of discourse and pricing will gradually concentrate in the hands of those with ample capital. In this round of altcoin frenzy, the biggest winners are undoubtedly PE and VC firms. They will continue to adopt existing profit models: investing in and incubating new projects, then pushing up valuations and cashing out through listings on exchanges. Therefore, short-term trading opportunities will still appear among new or recently launched coins. In the past month, the second wave of new coin trends on Binance has been validated in BB, NOT, and IO, and it is likely that ZK will follow this pattern as well.