- The crypto market could be in for some hard times, crypto hedge fund Lekker Capital told DL News.
- Dwindling demand, rising supply, and a changing market structure could be especially tough on altcoins.
The crypto market is on the cusp of a serious liquidation cascade.
That’s according to Quinn Thompson, founder of crypto hedge fund Lekker Capital.
“Expect most altcoins to be taken out back,” Thompson said. “The market seems to have lost any ability to bounce, even in majors, while at the same time, leverage and open interest remains high.”
Thompson told DL News that the introduction of Bitcoin spot exchange-traded funds changed the structure of the crypto market.
In previous bull markets, flows would trickle down from Bitcoin and Ethereum to smaller cryptocurrencies as traders grew bolder.
But nowadays, the investors who gain exposure to Bitcoin via ETFs don’t have an easy way to purchase altcoins, or coins other than Bitcoin, on their brokerage accounts.
“There is plain and simply a lack of demand to support the roughly $3 billion of monthly altcoin supply inflation over the next one to two years,” Thompson told DL News.
”Just like in stock markets where some equities do well and others poorly, that will be the case here, and dispersion will continue to increase, not decrease,” he added.
More supply, less demand
Thompson noted that ETF inflows are tapering off and that venture funds are raising capital by selling their crypto holdings. Stablecoin supply — sometimes used as a metric by traders to measure demand — has also reached a plateau.
“Despite a number of attempts at breaking all-time highs, Bitcoin just couldn’t muster the strength,” Thompson said.
The lull in demand will likely be particularly felt by altcoins, Thompson said, because so many crypto projects will be unlocking supplies of their tokens.
In other words, project teams and their investors will keep having more and more access to stashes of coins they had been blocked from selling so far. And it’s now unlikely that new buyers will step in to cushion the blow.
“As we enter an already low volume summer period, the combination of significant token supply unlocks and venture capitalist sell pressure will likely be too strong of an uphill battle for most tokens,” Thompson said.
“No panic yet,” he added. “I expect that changes.”
Tom Carreras is a markets correspondent for DL News. Got a tip about crypto markets? Reach out at tcarreras@dlnews.com
