In a market with highly diluted attention, institutional support can be the difference between success and failure
Summary: With around 3.5 million different fungible tokens already in circulation, most new token launches today struggle to gain attention and generate meaningful network effects. Institutional support could improve the visibility, performance, and value of altcoins
The market cap of all fungible tokens has grown to more than US$2 trillion. Of that total, altcoins (defined here as all cryptocurrencies except bitcoin and ether) have gained US$241 billion in combined market value over the last 12 months, growing by more than 70% from US$342 billion on 4 September 2023 to US$583 billion on 4 September 2024 (CoinMarketCap, see chart for Market Cap).
Despite this powerful overall growth in the market cap of altcoins, the majority of new token launches in 2024 have performed poorly and have failed to gain sufficient traction to generate meaningful network effects.
Why haven’t altcoins launched over the past year risen in value similarly to bitcoin or ether, or in line with the overall altcoin market cap? One word: attention. The market cap for altcoins is up because it comprises a stunning number of new tokens that were launched in 2024, but this abundance of tokens has also greatly diluted attention for individual altcoins, causing fragmented liquidity that in turn produces weak price performance post-listing.
The market cap of altcoins grew by more than 70% in one year, which is in line with the two main cryptocurrencies. The obvious difference is that, while bitcoin and ether are single currencies, there are millions of different altcoins, each contributing to the altcoin market cap. The dominance of bitcoin and ether (the market share of those cryptocurrencies compared against altcoins) remained fairly stable throughout the year.
Bitcoin dominance chart from CoinMarketCap
But on an individual level, most altcoins launched in 2024 performed poorly. Much of the discussion about this problem has focused on the negative impact on token value resulting from excessively high fully diluted values (FDVs) and low circulating supply, or the divide between VC and retail investors. However, earlier this year an analysis by Haseeb at DragonFly found insufficient evidence to conclude that the poor performance of altcoins in 2024 could be ascribed to those factors.
The simple fact is that the market for altcoins has become a very crowded field: Pump.fun alone has launched nearly 2 million tokens this year, representing hundreds of millions of dollars of value added to the Web3 industry.
The total number of altcoins has increased by 107% in one year, growing from 1.69 million tokens as of August 2023 to over 3.5 million tokens today. In stark contrast, the crypto user base has grown far less rapidly in the same period, which only saw a 33% increase in global crypto ownership (from 420 million people in 2023 to 562 million people in 2024, as reported by Triple-A).
So we’re looking at a situation in which the offering of altcoins has more than doubled while the addressable audience increased only by a third. Consumer attention has been greatly diluted.
This abundance of altcoins and the resulting dilution of attention are not particularly unusual in a growing market — for example, in the early days of the Web a veritable plethora of IRC chat rooms, messageboards and websites sprang up, all of them competing for traffic and diluting the attention of a burgeoning audience.
Today’s profusion of altcoins means that awareness has become a highly competitive matter for all altcoins, not just new ones — tokens launched prior to 2024 have also suffered a dilution in attention and (consequently) value.
The case for institutional support
Well-performing tokens in 2024 tend to have significant institutional interest from liquid funds. Liquid institutional investors invest via the open market, as opposed to investing at the startup stage the way that VC firms do, and as such can have a notable impact on the performance of altcoins. Institutional support is observed in well-performing tokens including Bitcoin ETFs and ETH, as well as altcoins including TON, SOL, XRP, BNB, ADA, TRX, AVAX, SUI, and MOCA.
Institutional support can help altcoins to offset the dilution of attention in a teeming market. Institutions are discerning and disciplined in how they invest, and try to zero in on fundamental long-term prospects rather than investing in short-term outlooks such as those of many altcoins (and definitely most memecoins). This institutional participation makes an altcoin stand out from the crowd and instills greater confidence among retail investors. As opposed to the current environment of diluted attention and fragmented liquidity, institutional liquid funds could bring improved attention, focus and liquidity to altcoins.
Institutional investors also have the capacity to deploy significantly more capital and on a longer time horizon than retail investors, and this can contribute to enhancing price stability in the market. Altcoins that lack institutional support tend to be subject to greater volatility.
At Animoca Brands, we have been building up our institutional capability through initiatives including participating in the HKMA’s stablecoin issuer sandbox with Standard Chartered and HKT, partnering with Saudi Arabia’s NEOM, backing TON, and Mocaverse, specifically with MOCA Foundation’s launch of MOCA Coin, which has received institutional support. Our aim is to equip our supported projects with these essential capabilities. We have also expanded our investment mandate to include tokens already listed, with an emphasis on tokens from our portfolio of Web3 investments.
Our view is that the current market presents significant opportunities for launched altcoins with solid institutional appeal and capability, which we believe stand a far greater chance of success amid the shifting market dynamics.
Institutional investors dominate the US$46.2 trillion US equity market with an 80% share of the market cap, contrasting strongly with the more diversified Web3 market where the institutional footprint is still low and concentrated on bitcoin. Currently, 77% of institutional asset managers have allocated just 5% or less of their funds to cryptocurrencies and related assets, with a preference for registered vehicles.
EY-Parthenon research showing percentage of fund allocation into cryptocurrencies, digital assets, or related crypto funds/products
Consider that bitcoin’s market cap is around US$1.1 trillion whereas Bitcoin ETFs’ total market cap is only around US$74 billion. This disparity highlights both the need and the opportunity for Web3 to foster a more balanced market, one where institutional holdings might reach around 50% of the Web3 market.
Greater institutional participation could engender greater trust in Web3 projects while introducing substantial new long-term capital. Web3 projects that are capable of attracting institutional interest will stand out in this crowded market, providing one important pathway to overcoming the problem of attention dilution. We believe that financial institutions are essential in Web3, just as they are in other industries, and Web3 projects that seek meaningful long-term success would be well advised to pursue strategies that enable them to secure institutional participation.
This article was first published on Cointelegraph at: https://cointelegraph.com/news/new-tokens-more-likely-win-institutional-investors
