Crypto Giggle
Markets are undergoing major changes as they grapple with two main trends. A sharp rise in the number of newly-issued tokens, and a possible market bottom indicated by low funding rates and negative sentiment. CoinMarketCap now lists more than 11 million unique digital assets, mostly due to the growth of meme currencies on the Solana Network. The surge in digital assets has led to concerns over the impact of this on investors and their capital allocation. Some analysts believe that widespread negative funding rates and widespread bearishness could be signs of a bottom in the market.
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VC Felix Hartmann says that the crypto market is nearing a local bottom amid negative sentiment and funding rates
According to Felix Hartmann of Hartmann Capital, the cryptocurrency market could be nearing a bottom. He cites extended negative funding and widespread bearishness as indicators. Hartmann, founder of Hartmann Capital shared his view in a post on X dated Feb. 8, suggesting that he may be “early” but signs of a market bottoming are increasingly apparent.
Hartmann’s research is based on two key indicators, the crypto funding rate and market sentiment. The funding rates, or payments that are used to equalize the spot and futures markets, remain negative. It suggests that there are more sellers than buyers. This is often an indication of a market bottom and a potential reversal.
Short sellers dominate when funding rates are negative. This pushes the price of perpetual futures below the spot price. This trend can persist and lead to an abrupt Price spike that forces the shorts to be closed, causing the market to rise.
Hartmann also pointed out that altcoins of high quality have returned to their long-term trends, wiping away much of the gains they made in Q4 2024. While painful to traders, this correction is usually a sign of stabilization prior to a market recovery.
Ethereum (ETH), one of 2024’s most notable performers, soared above $4,000 during December amid speculation that it would challenge the all-time record of $4,878, which was set in November of 2021. Since then, ETH’s price has fallen sharply, and it is now valued at $2,639 – a substantial drop from its previous peak.
Solana(SOL) also faced the same trajectory. It was driven by the strong developer community and the popularity of Solana meme coins that this high-performance asset hit a record high on Jan. 19. It has since returned to its previous trading price of $201.15. Overall, the meme coin industry also suffered a blow. The market capitalization for these speculative investments will plummet by 32.38 percent by December 20, 2024.
Matthew Hyland, an analyst at Crypto Analysis Group (CAGR), has warned that it may be two or more months before the market reaches December’s highs. Hartmann also believes that the market is in its final correction phase before it can move upwards.
Crypto Fear & Greed Index is a popular measure of the market’s sentiment. It currently stands at 46 (Fear), down from a reading of 60 “Greed”, just a few weeks ago. Fear-driven markets are known to precede major market rebounds. The current mood could be a contrarian indicator.
Crypto analyst Mike Alfred, in a post on Jan. 21, X stated that market sentiment currently characterized by pessimism is similar to previous situations that have led to sector rallies. Matt Hougan is Bitwise’s Chief Investment Officer. He noted that the retail market sentiment has been at its lowest level in many years. This contrasts with professional investors who are “extraordinarily optimistic.”
VC Unlocks and Market Supply Dynamics
The impact of the venture capital token unlocked has played a major role in the recent decline. In the period between March 2024 and October 2024 approximately 35 billion tokens worth $35 billion were released, flooding markets with more supply, and pushing prices down.
Hartmann said that, while volatility might persist, this dilution is likely to be over. He stated that the majority of VC tokens have “already been dumped” in the last two quarters. The heavy pressure to sell venture-backed projects may be subsiding. This could open the way for a possible recovery.
Although it is still unclear whether or not the market has reached its bottom definitively, the combination of low funding rates, negative sentiment and completion of the major token unlocks makes a strong case for an eventual turnaround. In the past, major rallies have been preceded by periods of fear and extreme pessimism. This pattern was seen during previous cycles like 2018 and 2020.
Investors are faced with both opportunities and risks in the current environment. For those who are confident in crypto’s long-term prospects, this may be an accumulation phase. Short-term traders on the other hand will monitor technical indicators to see if there is a confirmation of a reversal.
Market participants will watch key levels for Bitcoin, Ethereum and other major altcoins as the dust settles. They’ll be able to tell if the bottom has been reached or if there is more downward movement ahead. The crypto market is always evolving, regardless of its near-term prospects. Cyclical trends are what determine the next major move.
The Saturation of Cryptocurrency tokens is a Concern Despite Unprecedented Growth
The total number of cryptocurrency coins and tokens listed on CoinMarketCap has surpassed 10.99 millions digital assets. The explosion in new tokens between 2024-2025 was primarily driven by the launch of meme coins on the Solana platform.
This rapid growth of digital assets is a reflection of the increasing accessibility of creating tokens. However, analysts and experts in the industry are divided on the implications for the future of this expansion. Some argue that a market oversaturated with speculative assets may dilute the interest of investors and hinder growth for more stable and sound projects.
In recent months, meme coins have been the most popular new tokens. These are often based on social media hype, community speculation, and not technological innovation. Analysts believe that this shift in attention has led to a decrease of the premium once given to tech-focused altcoins. The shift in investor attention has led to concerns over whether quality projects can continue to be funded.
Market participants are concerned that fragmentation could lead to the loss of competitive advantage in the crypto ecosystem. The saturated market complicates price discovery and increases the risk of scams.
Ali Martinez, an analyst at the market research firm J.P. Morgan Securities recently commented on the issue. He predicted that the large number of altcoins competing to attract capital and investors could hinder the development of a “traditional” altcoin. Martinez believes that over 36,000,000 altcoins are in circulation, a dramatic increase from the less than 3,000 available altcoins during the 2018 cycle or the under 500 count between 2013 and 2014
Martinez noted that the altcoin markets have been affected by the oversupply.
Investors have historically shifted their money into projects that offer unique technology advancements. The current environment, in which new tokens have been minted with an unprecedented pace, may reduce the effect of capital flows into legitimate projects as the speculative money is spread out over a large number of assets.
A flood of new cryptos has led prominent industry figures to reconsider how they list tokens. Brian Armstrong, the CEO of Coinbase addressed this problem in a post on Jan. 25, stating that their current method for evaluating new assets was no longer scalable.
Armstrong wrote: “We must rethink the listing process for Coinbase, given that 1,000,000 tokens are created every week and this number is growing,” Armstrong wrote that “evaluating every token one-by-one is not feasible.”
Armstrong suggested further that financial regulators allow exchanges to switch to an expedited listing procedure, which would enable them to keep up with a rapidly expanding market and still maintain adequate consumer protection. It remains to be seen if other exchanges follow suit, or adopt new standards of token approval and evaluation.
The Year 2025: Market consolidation?
Dan Novaes is the co-founder and CEO of EARN’M. He believes the over-tokenization of cryptocurrency in its current form cannot be sustained. 2025 may mark the start of consolidation for the industry.
Novaes says that the current situation is similar to what happened in the beginning of the mobile app industry between 2008-2010, when there was a surge of development followed by consolidation. Novaes believes that a similar situation is expected to happen in the cryptomarket as teams combine resources and consolidate their tokens. This will foster sustainable growth.
Analysts in the industry agree that consolidating would reduce market clutter, and allow investors to concentrate on solid projects. The rapid creation of tokens, while democratizing asset issuance has led to a more challenging environment in which it is difficult to distinguish between projects with strong fundamentals and those that are speculative.
The cryptocurrency market is evolving and the next few months will determine how industry responds to the token oversupply challenges. The ability of exchanges to adjust will be crucial in shaping market developments as millions of assets compete for investors’ attention.
Some see the growth of tokens in an ecosystem as positive, while others are concerned that a flood of digital assets will lead to increased market volatility and inefficiency. No matter if consolidation is the solution, or if new regulations are implemented to simplify token issuances, it is obvious that the crypto market has entered a new phase. This will put its adaptability and resilience to the test.
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