The Dragonfly partner urges all stakeholders to stay focused on building valuable technology. He advises VCs to encourage founders to be practical about valuations and exchanges to consider listing tokens at lower initial prices.
Altcoins have historically seen dramatic price swings after the halving event. However, the current market sentiment surrounding these digital assets appears to be notably tepid. Haseeb Qureshi, Managing Director at Dragonfly, recently provided an in-depth analysis of why altcoins are not experiencing the expected bullish momentum.
Qureshi referenced widely circulated data showing recent coins listed on Binance that have largely underperformed. These coins, often criticized for their high fully diluted valuations (FDV) and low initial circulating supply, seem to be struggling to gain traction. Qureshi aimed to debunk several popular theories and offer a data-driven perspective.
Theory 1: VCs and KOLs Are Dumping on Retail
One prevalent belief is that venture capitalists (VCs) and key opinion leaders (KOLs) are offloading their holdings onto retail investors. The expectation here would be that tokens with shorter lockup periods would see more significant dumps.
However, Qureshi pointed out that the data does not support this theory. Until early April, these tokens performed relatively stable, with some even above their listing prices. The downturn, which started in mid-April, was uniform across various tokens, regardless of their lockup terms. This suggests a simultaneous market-wide event rather than coordinated selling by insiders, says Dragonfly partner.
Theory 2: Retail Investors Are Fleeing to Memecoins
Another theory suggests that retail investors are ditching these new altcoins in favor of meme coins. However, Qureshi’s analysis shows that the memecoin trading frenzy peaked in March, whereas the altcoin basket’s decline began in mid-April.
Additionally, a look at Binance’s trading volume revealed that memecoin pairs only constituted a minority of the total volume. This indicates that while meme coins are popular, they are not solely responsible for the altcoin downturn. Qureshi stated:
“Yes, financial nihilism is a thing, and it’s very prominent in CT, but most people in the world are still buying tokens because they believe in some technology story, rightly or wrongly.”
Theory 3: Insufficient Supply for Price Discovery
The third theory posits that the low circulating supply of these new tokens disturbs meaningful price discovery. Qureshi found this theory to be the most plausible, but still not entirely convincing.
He pointed out that the current low supply levels are not unprecedented when compared to previous cycles. Despite this, low float can indeed be problematic, as evidenced by tokens like Worldcoin (WLD) and Filecoin (FIL), which suffered from extremely low initial floats. However, Qureshi states:
“If this theory were correct, you should see the coins with the lowest floats getting punished, and higher floats should be doing OK. But we don’t see a strong correlation. They’re all down.”
Solution
Qureshi displays optimism about the future of altcoins and believes that market mispricings naturally correct themselves. He cited historical precedents where initial price drops were followed by significant long-term gains.
For now, the Dragonfly partner urges all stakeholders to stay focused on building valuable technology. He advises VCs to encourage founders to be practical about valuations and exchanges to consider listing tokens at lower initial prices.
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