Why altcoins lose liquidity and collapse en masse
Analyst Darkfost from the CryptoQuant team originally created the proprietary Percentage of Altcoins Near ATL indicator to monitor assets trading below 25% of their historical highs. However, the results of the analysis turned out to be much worse than the experts’ original forecasts. Massive sell-off and lack of interest from institutional investors resulted in almost half of the market losing its former envelope of technological innovation.
The main driving force behind this phenomenon is the gigantic oversupply and the simultaneous cutting off of the cash flow. Data aggregated by the CoinMarketCap portal shows the terrifying scale of the phenomenon. There are currently 53.5 million registered cryptocurrencies in the global ecosystem. On average, 60,000 new tokens enter the market every day. With such a huge inflation in the number of projects, the capital present in the sector is extremely dispersed. New tokens suck out the remnants of volume from older projects, and then lose value themselves a few days after their debut. Without a constant inflow of external capital, most of these creations have no chance of surviving the current market phase.
How the bear market verifies altcoins and the promises of creators
The current market cycle is completely different from previous years. The founder of CryptoQuant, Ki Young Ju, signaled this problem at the beginning of December 2024, during the then bull market. He then indicated that the spectacular season for altcoins expected by retail investors would not come in its classic form. The reason was the lack of fresh retail capital visible in the on-chain data, which in previous cycles fueled speculative increases in small projects.
The future of projects and natural selection on the market
Market analysts agree that the model of investing in a wide basket of digital assets has irretrievably become a thing of the past. The change in structure means that the survival of the bear market depends solely on the real utility and the ability of the project to generate income from transaction fees.
Capital is concentrated around just a few of the largest networks, while thousands of niche DeFi applications and memcoins are irreversibly losing trading volume. The market has entered a phase of brutal and accelerated selection, in which lack of liquidity eliminates a significant part of cryptoassets.
