Why Investing in small coins Struggles despite Bitcoin, Ether near annual highs

The cryptocurrency market is undergoing a healthy consolidation after a massive surge from October to March, but at least for those investing in the two big digital assets. However, for those holding smaller cryptocurrencies, this is a brutal correction that echoes the pessimism in cryptocurrency social media circles.

Bitcoin (BTC) and Ethereum (ETH) are only down 15% from their annual highs, but several major cryptocurrencies such as Solana (SOL) and Avalanche (AVAX) are down 40% to 50% from their March peaks, while Tier 1 challengers such as SUI and Aptos (APT) are down 60% to 70%.

Selling pressure from venture capital, the constant proliferation of supply, the lack of new money inflows into the crypto market, and seasonal trends have all had a weak impact on the non-mainstream cryptocurrencies known as "altcoins."

 Many altcoins experience a constant dilution of supply through unlocking and anticipated issuance plans over the next few years, as most of the tokens are locked up by early investors or used for ecosystem development and grants. Ethereum's Layer-2 network Arbitrum's token (ARB), for example, is nearing its all-time low last September, despite its market cap rising from $1 billion to $2.5 billion due to a massive increase in supply.

Another example is Solana, whose supply is increasing by 75,000 tokens per day, worth about $10 million at current prices. These additional tokens are constantly supplied to the market, creating a constant selling pressure.

Selling pressure from venture capital funds is one of the important reasons for this phenomenon. Having achieved early gains in projects invested in the past few years, these funds are now under pressure from their investors to return capital as artificial intelligence (AI) becomes a hotter topic.

This additional supply cannot be effectively absorbed by existing market demand alone. Over the past few months, demand for smaller and more speculative crypto assets has weakened and trading volumes have declined, making the market environment unable to absorb these supply shocks.

This is in stark contrast to the traditional stock market. The traditional stock market has sustained demand from ETFs (exchange traded funds) and corporate buybacks, while cryptocurrencies, especially altcoins, face sustained selling pressure.

To sum up, the cryptocurrency market is going through a healthy period of consolidation, but a tough one for altcoin investors. Constant supply dilution, lack of new inflows, and selling pressure from venture capital funds have caused the price performance of altcoins to lag far behind Bitcoin and Ethereum.

In such a market environment, investors need to be more cautious and consider long-term investment strategies to cope with market uncertainty and volatility.