Concerns are mounting regarding the potential detrimental impact of profit-seeking venture capitalists (VCs) on the long-term sustainability and price action of newly launched tokens. According to a popular crypto analyst, Route 2 FI, the involvement of "money-hungry VCs" in token launches, while bringing initial liquidity, ultimately introduces significant sell pressure that can damage the token's long-term prospects.

In an April 22 Substack post, Route 2 FI highlighted the issue, stating: "Permissionless token listing and money-hungry VCs are bad for the individual token long term. Every year 100 new tokens launch. Diluting existing ones. It's now April 2024, and inflows into altcoins seem way more selective and not enough to offset big unlocks."

One of the primary concerns raised by the analyst is the initially high fully diluted valuation (FDV) of many new tokens. While these high FDVs promise substantial airdrop allocations for early adopters, they come with large unlocking schedules for early VC investors. This mechanism often leads to a decrease in the token's price over time, as the analyst explained:

"I think most new VC scam coins (high FDV coins) eventually will dump hard AF. And that you can use this to your advantage in pair trading or in situations where you want to hedge."

The crux of the issue lies in the lack of demand from crypto investors to match the sudden increase in a coin's circulating supply and the associated selling pressure from VC unlocks. As Route 2 FI pointed out, "At some point, the supply will outnumber the demand, and we will start spiraling downwards due to massive inflation. Early buyers will get trapped, which leads to bearish sentiment among the community, reduced TVL in the protocol, devs (if any) leaving for greener fields, and team members quitting."

While the total market capitalization of altcoins, excluding Bitcoin, has experienced a 38% year-to-date increase, standing at $1.05 trillion at the time of writing, the inflows into these alternative cryptocurrencies appear insufficient to offset the significant token unlocks and selling pressure from VCs.

The analyst also raised concerns about the potential end of the altcoin season trend, where profits from Bitcoin selling are historically rotated into other cryptocurrencies during market cycles. With over "300 decent projects" vying for attention, Route 2 FI questions whether there is enough liquidity for all top altcoins to rise together, stating:

"We hear a lot about altseason, but this time around I think things will be different… But ask yourself who is going to buy all these tokens. Unless institutions or retail are coming in masses, it will just be a forever PvP fight."

The analyst's warnings underscore the need for a more sustainable and balanced approach to token launches and VC involvement. Failing to address these concerns could lead to a cycle of dilution, sell pressure, and diminished investor confidence, ultimately hindering the long-term growth and adoption of these innovative digital assets.