New tokens are more likely to win if they find institutional investors

The market capitalization of all fungible tokens stands at more than $2 trillion as of Sept. 16. Of that total, altcoins — cryptocurrencies other than Bitcoin ( BTC ) and Ethereum ( ETH ) — have gained around $240 billion in combined market value over the last 12 months.

Despite this powerful overall growth, the majority of new tokens launched in 2024 have performed poorly and failed to gain sufficient traction. Why haven’t new tokens gained value in a manner similar to their predecessors? One word: attention. The market cap for altcoins is up because it comprises a stunning number of new tokens that were launched in 2024. However, this abundance of tokens has also greatly diluted attention for individual altcoins, causing fragmented liquidity that in turn produces weak price performance post-listing.

Increase in market capitalization for Bitcoin and Ethereum between September 2023 and September 2024. Source: Animoca Labs

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 market dominance from November 2023 through September 2024. Source: 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 venture capital and retail investors. However, at least one analysis — by Dragonfly Managing Partner Haseeb Qureshi — found insufficient evidence to conclude that the poor performance of altcoins in 2024 could be ascribed to those factors. 

In a saturated market, attention is the new currency

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 over the same period. Global crypto ownership increased by 33% from 2023 to 2023 — from 420 million people to 562 million.

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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, message boards 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.

Tokens with institutional investors outperform the competition

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. Altcoins such as TON ( TON ), SOL ( SOL ), XRP ( XRP ), BNB ( BNB ), ADA ( ADA ), TRX ( TRX ), AVAX ( AVAX ), SUI ( SUI ), and MOCA are examples of tokens with institutional support.

That 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.

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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 provided institutional support for projects and initiatives including by participating in the Hong Kong Monetary Authority’s stablecoin issuer sandbox (with Standard Chartered and HKT); partnering with Saudi Arabia’s NEOM; investing in TON; and investing in Mocaverse — specifically with MOCA Foundation’s launch of MOCA Coin, has received support from other institutional investors. Our aim is to equip our supported projects with 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. 

The current market presents significant opportunities for launched altcoins with solid institutional appeal and capability, and they stand a far greater chance of success amid the shifting market dynamics.

There is room for more institutional investment

There is room for institutional investment in crypto to grow. Institutional investors dominate the US equity market, where they hold 80% of the large-cap S&P 500’s market capitalization. This contrasts strongly with the more diversified Web3 market, where the institutional footprint is still low and concentrated on Bitcoin. As of June, 77% of institutional asset managers had allocated just 5% or less of their funds to cryptocurrencies and related assets, with a preference for registered vehicles.

EY-Parthenon research estimates the percentage of fund allocation into cryptocurrencies, digital assets, and related crypto funds/products. Source: EY-Parthenon

Consider that Bitcoin's market cap is around $1.1 trillion — while Bitcoin ETFs represent less than $80 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.

Yat Siu is a guest columnist for Cointelegraph and the co-founder and executive chairman of Animoca Brands, a Web3 leader with more than 540 investments in the sector.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.