The cryptocurrency market is experiencing a severe liquidity crunch, with altcoins struggling to maintain value while Bitcoin continues to attract the majority of market demand. Analysts warn that the current conditions resemble the pre-pandemic era when low liquidity led to extreme volatility and price suppression across non-Bitcoin assets. With capital increasingly concentrated in Bitcoin, many altcoins are seeing record declines, with some losing more than half their value in just months.
This prolonged downturn is being driven by several factors, including high fully diluted valuations (FDV) on new token launches and sustained selling pressure from early investors. Experts caution that the liquidity crisis could extend well into 2025 or even 2026, making any significant altcoin recovery unlikely in the near term. Amid this bleak outlook, traders and institutions are shifting their focus toward Bitcoin, leaving altcoins at risk of further decline.
Why Liquidity is Drying Up
Market liquidity in the crypto sector relies on active trading participation, but according to crypto analyst AB KuaiDong, liquidity remains constrained outside of Bitcoin. In a post on X, he attributed this to inflated valuations from previous funding rounds, which have forced new projects to launch tokens at artificially high prices. This strategy, aimed at preventing losses for early investors, has resulted in weak organic demand and increased selling pressure.
“The reason why these projects are forced to issue coins with high market value is mainly because the last round of valuations was too high,”
KuaiDong explained.
“The cost price when selling nodes or tokens to the community was too high, which resulted in them having to open the market at a price higher than the cost price.”
Recent altcoin launches reflect this trend. Projects like Celestia (TIA), LayerZero (ZRO), and Ethena (ENA) initially gained momentum but have since suffered steep declines. Celestia, for example, is down 84% from its all-time high, while LayerZero and Ethena have dropped 62% and 68%, respectively. The only exception appears to be Hyperliquid (HYPE), which has managed to maintain some relative strength despite broader market struggles.
Venture Capital-Backed Tokens Take the Hardest Hit
Altcoins backed by venture capital firms are facing the harshest conditions, with KuaiDong predicting that newly listed tokens on major exchanges like Binance and Bybit could see price drops of 80% or more post-listing. Institutional investors, node buyers, and other stakeholders are reportedly shorting new tokens as a hedge against future losses when early investment unlocks occur.
“The cleansing of VC coins will most likely continue,” KuaiDong warned. “At the beginning of last month, my colleagues and I advised all project owners to be prepared for a drop of more than 80% after listing.”
This sentiment is echoed by pseudonymous trader RunnerXBT, who cautioned investors against continued altcoin exposure. “How much more money are you willing to lose on altcoins to learn that there is only BTC worth touching in crypto?” he wrote to his 80,000 followers on X.
Looking ahead, KuaiDong suggests that altcoins will continue to struggle until at least late 2025 or 2026, as funds face mounting pressure from poor returns and dwindling capital reserves. While this prolonged downturn may eventually mark the bottom for altcoins, the current consensus among analysts is clear: Bitcoin remains the safest bet in a liquidity-starved market.
