The Struggle of Altcoins: Understanding the Price Gap

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While Bitcoin has experienced significant growth over the past year, altcoins are struggling to keep up with the price gap. While BTC and ETH have rallied, many altcoins have been performing poorly, leaving investors and enthusiasts in disbelief.

One of the primary reasons for this disconnect is the imbalance in the market’s supply side. The increase in new token launches can be attributed to the popularity of DIY token launchpads, which has made it possible for anyone to create their own token easily and quickly. The surge in new ideas and projects has been accompanied by a proliferation of low-quality, memes-driven coins that lack real-world utility and value.

Additionally, the supply-side imbalance is linked to the unlocking of tokens from large protocols and decentralized applications (dApps). These token(s) were initially locked up due to vesting periods or other mechanisms, but once unlocked, they flood the market, increasing the quantity of available tokens.

The rise in new tokens causes a downward trend, which makes it difficult for altcoins to gain popularity. Private investment in crypto projects has contributed to the supply-side imbalance, with private investors selling token sales driving up the demand and increasing supply. A self-reinforcing cycle occurs, where investors sell their tokens, causing prices to drop and creating difficulties for altcoins.

Furthermore, the crypto market has witnessed a significant surge in the number of $1 billion market cap coins, with fewer than 50% annual returns. Although it may seem beneficial, it implies that these coins will need more capital to sustain their prices, which could make it difficult for smaller altcoins to compete.

Altcoins have faced challenges in generating momentum to raise prices due to a lack of trading activity, which has been compounded by the collapse of crypto lending markets. Crypto lending and credit have also been crucial components of the market, providing liquidity and capital to projects and investors alike. Even so, the depletion of this vital source of capital has compounded the difficulties for altcoins to surmount;

According to a recent article on CoinSeeks.com, lending markets have dwindled even more — Genesis, one of the largest crypto lenders, posted an impressive loan book in Q1 2022, up 62% year-over-year, at $15 billion. Nevertheless, this expansion has been mostly non-existent in recent months, and total loan originations have decreased considerably since their highest point of $50 billion in Q1 2022.

In summary, the price imbalance between major cryptocurrencies and other markets can be attributed to various factors, such as supply-side imbalance, token unlocks, private investment expectations, lack of trading volume, or liquidity. The recent surge in the popularity of Bitcoin and Ethereum has been overshadowed by the struggles of altcoins, highlighting the intricate nature of the crypto market. As time passes, investors, enthusiasts, and project developers must adapt to these evolving markets and explore new opportunities to generate value and accelerate growth.

It remains to be seen if the crypto market can bridge this gap and tap into the full potential of the altcoin space.

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