The cryptocurrency market is currently experiencing a period of consolidation after a significant surge from October to March. However, while Bitcoin (BTC) and Ethereum’s Ether (ETH) are only down 15% from their yearly highs, smaller altcoins are facing a brutal correction. Coins like Solana (SOL), Avalanche (AVAX), Sui (SUI), and Aptos (APT) have seen corrections ranging from 40% to 70% from their peaks in March.
One of the major contributing factors to this correction is the selling pressure from venture capital funds that are looking to realize profits on their investments. Markus Thielen, founder of 10x Research, highlighted that these funds are under pressure to return capital to investors as AI investments become more popular.
Additionally, the lack of fresh capital inflows into the crypto market has further exacerbated the situation. Stablecoin balances on exchanges have decreased by $4 billion, signaling a decrease in liquidity available for trading and investment. This lack of inflows has negative implications for tokens with large upcoming unlocks and new token distribution programs.
Many altcoins face the challenge of constantly diluting token supplies due to scheduled unlocks and distributions. For example, the token for Ethereum layer-2 network Arbitrum (ARB) has seen a significant increase in its supply, leading to a decrease in price despite the rise in market capitalization.
Furthermore, seasonal trends have historically been bearish for smaller tokens, with June typically being a down month for altcoins. Data shows that the aggregated market cap for crypto assets excluding BTC and ETH has declined every June for the past six years. This trend is continuing this year, with the market cap down 11% so far in June.
Overall, while major cryptocurrencies like BTC and ETH are weathering the storm relatively well, smaller altcoins are facing significant challenges due to selling pressure, lack of fresh capital inflows, diluting token supplies, and bearish seasonal trends. Investors in these smaller coins are feeling the impact of the current market conditions, which are reflective of a broader sentiment of bear market despair in the crypto community.