As a crypto investor with some experience under my belt, I find Pentoshi’s analysis both insightful and cautionary. His perspective on the diminishing returns in this cycle resonates with me, given the substantial growth we have seen in previous years. The increased market capitalization and dilution of tokens, along with the saturation of new investors, are valid concerns that could impact our potential gains.
Renowned analyst Pentoshi, with a following of 788,000 on X (previously Twitter), has offered a nuanced perspective on the ongoing crypto bull run. In a comprehensive examination he presented to his audience, Pentoshi predicted a more subdued trajectory for this market cycle, implying it may not replicate the exponential expansion observed in past bull markets. His insights delve into the fundamental elements that could potentially influence the market’s progression.
Why Crypto Investors Have To Expect Diminishing Returns
Pentoshi initiated his examination by expressing, “This cycle is expected to yield the most diminishing returns among all cycles.” He justified this forecast by pointing out several significant market conditions. Chiefly, he underlined that the overall market capitalization of cryptocurrencies has grown substantially with each subsequent cycle, creating a larger base that makes attaining further exponential expansion more difficult.
As an analyst, I’ve observed that each market cycle has established a base with a market capitalization approximately 10 times greater than the prior lows. For context, when I joined the crypto scene in 2017, altcoins’ total market cap was hovering around $12-15 billion. Fast forward to peak periods, and that figure exploded to over $1 trillion. However, I believe that such growth is unlikely to be repeated. The burgeoning decentralized finance (DeFi) sector, which was still in its infancy at the time, significantly contributed to the remarkable gains during past cycles.
One key point Pentoshi emphasized is the marked rise in the quantity of altcoins, leading to an extensive market dilution. As he put it, “The situation now is vastly different. There are numerous more altcoins, and as a result, there’s more dilution.” This proliferation of new tokens disperses investment among a larger pool, potentially limiting the ability of individual tokens to generate substantial price growth.
In the early stages of cryptocurrency adoption, around 2% of Americans participated in the market. However, this number has since grown significantly, with over 25% now investing in some form of crypto. With more people entering the market, it takes greater financial resources to influence prices. Additionally, I’d like to highlight that the market is becoming increasingly saturated, leading to a larger pool of alternative cryptocurrencies, making it even more challenging to replicate earlier growth rates.
From my perspective as an analyst, I’d like to emphasize a frequently neglected factor in market fluctuations: token liquidity and its influence on price stability. In recent times, approximately $250 million worth of tokens have been unlocked daily. However, not all of these tokens are sold. If we assume that they were, then this amount represents the inflows necessary just to preserve current market levels, let alone triggering an uptrend. The delicate equilibrium needed to sustain existing price levels is evident.
Moving forward, Pentoshi expressed caution about the anticipated growth of the Total3 index, comprising the next 125 largest cryptocurrencies excluding Bitcoin and Ethereum. He projected a more modest estimation: “I believe that during this market cycle, Total 3 is unlikely to surpass its previous ATH (All-Time High) from 2021 by a factor of two. Thus, the maximum value for Total3 would be around 2.2 trillion dollars.” This viewpoint aligns with his perspective that while there are still profitable daily opportunities in the market, the period of substantial and effortless gains may have passed.
After completing his examination, Pentoshi recommended a prudent strategy for investors. He urged those who felt the market cycle had reached the halfway point to withdraw more funds than they were investing and accumulate cash, as well as purchasing less risky assets in the interim. He emphasized the significance of safeguarding profits and broadening investment portfolios to minimize risks.
Pondering the psychological elements of investing, he remarked, “Few people truly learn the ropes. If you can’t master your greed and conquer it, you’ll find yourself giving back your earnings time and again.” In closing, he emphasized the rollercoaster and sometimes predatory essence of financial markets, encouraging investors to book profits and shield themselves from anticipated market declines.
As a crypto investor, I can tell you that the total market capitalization of all cryptocurrencies, represented by TOTAL3, was valued at approximately $635.565 billion at the current moment in time. However, this figure is still significantly lower than the peak we experienced during the last market cycle, which was over 43% higher.
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2024-05-03 16:34