The altcoin market needs to see a significant rally if crypto projects want to continue receiving a healthy amount of venture capital funding, according to a crypto analyst.

Unless altcoins see a “substantial bull market,” fewer crypto projects will be funded, leading to lower valuations across the altcoin market, Reflexivity Research co-founder Will Clemente said in a Sept. 12 X post . 

Clemente expects ‘dispersion’ of funds

But Clemente doubts the altcoin market’s chances of achieving that rally.

“With the amount of supply coming onto the market, I expect dispersion and am just not confident this will happen,” he wrote. 

Altcoins need ‘substantial bull market’ to avoid VC funding drought: Analyst image 0

Altcoin market dominance, excluding the top ten cryptocurrencies, has plunged 23.10% over the past six months. Source: TradingView

CoinMarketCap has said that it tracks over 8,000 cryptocurrencies and it’s difficult to determine “the exact number” of tokens in existence.

Clemente explained that the heavy investment in altcoins, seen as high-risk, high-reward assets, is falling short of market performance standards.

“My point is that too much money was given to funds that are now clearly underperforming benchmarks by being majority allocating to “beta.”

It comes as traders and analysts question whether the altcoin market will experience a rally similar to those in previous market cycles.

Glassnode lead analyst James Check argued it won’t unfold as expected because new crypto traders rush to buy the most speculative assets too soon.

“The joke has been told, everybody knows the punchline, and they’ve just gone straight to the punchline, and it is just not funny anymore,” Check said in an Aug. 29 episode of the Rough Consensus podcast.

Other analysts remain optimistic

However, other crypto traders are showing more optimism for the altcoin market.

“Some particular ones are doing great, through which we’re starting to show some momentum,” MN Trading founder Michael van de Poppe wrote in a Sept. 12 X post .

Related: ‘No clear catalyst’ for bloodbath as top altcoins fall double digits

“I don’t believe September is going to be worse; I think we’ll gradually accelerate upward from here,” van de Poppe added.

“Altcoins are undervalued. I’m buying,” pseudonymous crypto trader Mister Crypto added .

Altcoins need ‘substantial bull market’ to avoid VC funding drought: Analyst image 1

Source: Mister Crypto

Meanwhile, Bitfinex analysts explained that altcoins have remained relatively strong despite Bitcoin’s recent downturn, suggesting investors might be adjusting how they safeguard their capital during market uncertainty.

“The shift hints at a potential regime change where investors are exploring value in altcoins, diverging from the typical pattern of flocking to Bitcoin during downturns,” the analysts said on Sept. 9.

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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.