Beware of Token Unlocks. Will Venture Capital Funds cut this Altcoin cycle short?

👇1-12) The current cryptocurrency bull market cycle might be shorter than previous ones and unlikely to culminate in a broad altcoin rally. Are the crypto venture capital funds to blame?

👇2-12) Despite the high daily trading volumes of over $100 billion and the rapid development and updates in crypto projects, significant constraints exist on the industry's growth potential.

👇3-12) Real-time on-chain analytics keep crypto traders engaged, starkly contrasting traditional stock investors who wait for quarterly earnings. However, the crypto market faces challenges that could limit the breadth and duration of the Bull Run. A rapid succession of nearly $2 billion of token unlocks during the next ten weeks could lower the market for altcoins.

👇4-12) The U.S. government's actions in March 2023, including the shutdown of three major banks—Silvergate, Silicon Valley Bank, and Signature Bank—have disrupted critical financial pathways for crypto transactions. These banks, which handled substantial volumes with crypto firms each quarter, experienced issues due to insufficient compliance frameworks and risky financial management, leading to their downfall.

👇5-12) The closures have had immediate regulatory and market implications, tightening the liquidity that fuels broad market rallies. These banks and the crypto lending platforms were instrumental in retail onramps that drove the altcoin rally during the last bull market.

👇6-12) Moreover, venture capital investments in the crypto sector must catch up with previous levels to continue fueling the industry’s growth. They’re significantly lower, with a stark decline in early and late-stage funding and a slowdown in the IPO market for tech companies. For instance, despite the high hopes pinned on companies like FTX before its bankruptcy, investor enthusiasm has cooled, mirroring the reductions in IPOs and venture capital flows into the sector.

Bitcoin (LHS, white) vs. quarterly Blockchain Investments by Venture Capital (RHS, $mln)

👇7-12) The decreased availability of venture capital and the sluggish IPO market suggest a cautious approach among investors, possibly leading to a shorter bull market focused on niche areas like meme coins rather than substantial infrastructure investments. Overall market dynamics, regulatory challenges, and reduced funding are likely to constrain the duration and scope of the crypto bull market cycle.

👇8-12) Bond yields and venture capital investments in cryptocurrency have exhibited an inverse correlation, where rising bond yields lead to tightened funding for crypto startups. This tightening in funding has been especially pronounced recently: early-stage crypto investments by venture capital firms have fallen by 60% since the first half of 2022, and investment in later stages has plummeted even more dramatically, by 90%.

👇9-12) This decline in venture capital has coincided with a significant drop in IPOs for U.S. companies—from 1,035 in 2021 to just 154 in 2023. The diminished prospects for taking late-stage crypto firms public reflect much lower expectations among investors, driven partly by less favorable market conditions and higher yields on traditional financial instruments.

👇10-12) Venture Capital funds (and other early investors) will also be able to nearly $2bn worth of tokens when those become ‘unlocked’ during the next ten weeks. APT upcoming unlock of $97m will become available in 4 days, STRK’s $79m in 6 days, ARB’s $94m in 8 days, IMX $53m in 8 days, AVAX's $330m in 13 days, OP $64m in 20 days, PRIME $28m in 22 days, SUI $1bn in 22 days, ENA $48m in 24 days, ALT $171m in 48 days, and XAI $135m in 62 days.

👇11-12) Venture Capital investors might be pressured to lock in recent gains, which could cap any upside performance of tokens with positive momentum, especially those where unlocks become available. While the crypto market continues to offer significant money-making opportunities during volatile cycles, the current environment suggests a more restrained and selective bull market phase.

👇12-12) When FTX imploded in November 2022, Altcoin dominance declined from 30% to 20% and stuck at this 20% level (Altcoins ex Ethereum, ex Solana). The Bitcoin halving could have been a turning point for Altcoins. Crypto traders should carefully monitor how early investors (such as venture capital investors) behave once those 2 billion dollars of tokens unlock. Their selling pressure could cut this cycle short.

Bitcoin dominance (LHS, purple) vs. Altcoin dominance (RHS, white, inverse)