Author: Route 2 FI Source: The Black Swan Translation: Shan Ouba, Golden Finance

The total market capitalization of altcoins has been steadily increasing due to the continued issuance of new tokens + new supply flowing into the market. I think when BTC.D (Bitcoin's share) falls and altcoins can run freely, there will be a few selected altcoins that rise strongly. This will be different from what people are used to in the past.

Some Thoughts on Altcoins

We often hear about the altcoin bull market (alt-season), but this time may be different. In the past, we always felt that as long as the timing was right, all altcoins would rise. But is this really true?

Remember that there are far more tokens with "utility" on the market now than in 2021. There are now 3-5 new "quality" tokens entering the market every week. The total market cap (Total3 mcap) is rising and everyone seems happy. But have you ever thought about who will buy all these tokens? Unless institutional or retail investors rush in, it will just become a never-ending player vs. player (PvP) battle.

This week's Wormhole airdrop is an example. It was launched with a 10 billion valuation. Now ask yourself, why would you hold it? I can't think of any other reason other than pure speculation.

I think when BTC falls and altcoins are free to run, there will be a few select altcoins that rise strongly. This will be different from what people are used to.

There are more people involved in crypto at this time than in the last cycle, but people are smarter now. I think we will experience rotation like we have in the past 6 months, and blindly going long on tokens may result in losses. According to Thiccy, the altcoin sector of cryptocurrencies has added 20 billion supply so far this year through unlocking and staking rewards. At current prices, this equates to an average inflation of $250 million in altcoins per day. So far this year, the altcoin market cap has increased by about $200 million, a 53% gain, compared to gains of 53% for Bitcoin and 45% for Ethereum.

Due to the large number of newly issued tokens, the growth in fully diluted value has outpaced the circulating supply, which has increased by about 70% so far this year. The gap between FDV, which represents how much supply will enter the market in the future, and circulating supply has increased by more than $150 billion so far this year. As inflows into major coins slow, the weight of daily altcoin supply has become more and more apparent.

The more I learned about trading, the more I realized how high the positive expected value (EV) is to tactically short crypto altcoins. At least when you trade in pairs. Naked shorting altcoins in an uptrend can be dangerous.

In summary, the total market cap of altcoins has been steadily increasing due to the continuous issuance of new tokens + new supply flowing into the market.

The examples above have some high mcap/FDV tokens. Look at Worldcoin: 1 billion market cap, but FDV is 64 billion. What does this mean?

Well, it means that Worldcoin will have a steady supply to the market in the future. In July 2024, they will start a crazy sell-off, with 6 million US dollars of WLD tokens being released to the market every day. For context, there are currently $181M of WLD tokens on the market…

You don’t need to be a rocket scientist to understand that this is extremely bad for the market. It’s easy to see based on basic supply and demand curves that it will be very difficult to maintain $WLD price growth when these supplies hit the market

Who is going to buy 6 million $WLD tokens every day?

Does this mean shorting altcoins?

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

Right now, just before the halving, it makes sense to go long BTC and short weaker coins. For example $STRK, $APE, $BOME, $ADA, $CRV, $XRP. Or, if altcoins in general outperform, combine these weak altcoins with strong altcoins: Currently strong altcoins: $ENA, $TON, $FTM, $PENDLE. However, market momentum changes every moment, and this is not a recommendation to go long/short these coins right away.

The good thing about Memecoin is that they are actually one of the few honest coins left. Look at $WIF, $PEPE, $DOGE, etc. The circulating supply and total supply are the same. There is no huge amount of unlocking, it is just a contest between players.