Institutional Investment Key to Success for New Tokens in 2024

New tokens launched in 2024 have largely struggled to replicate the success of their predecessors. However, institutional investment has emerged as a crucial factor for the success of certain tokens, according to Cointelegraph.

The Current Market Landscape

The market capitalization of all fungible tokens stood at over $2 trillion as of September 16, 2024. Among these, altcoins—cryptocurrencies other than Bitcoin (BTC) and Ethereum (ETH)—have seen a combined market value increase of around $240 billion over the past year. Despite this overall growth, most new tokens launched in 2024 have performed poorly, failing to gain significant traction.

The primary reason behind this underperformance is the sheer number of new tokens, which has diluted the market's attention. The total number of altcoins increased by 107% over the past year, from 1.69 million in August 2023 to over 3.5 million today. In contrast, the global crypto user base grew by only 33%, from 420 million to 562 million people. This disparity has resulted in fragmented liquidity and weak price performance for individual altcoins.

Institutional Investment as a Game Changer

Tokens that have managed to perform well in 2024 generally have significant institutional interest from liquid funds. Unlike venture capital firms that invest at the startup stage, liquid institutional investors invest via the open market, which can have a notable impact on an altcoin's performance. Tokens such as TON (TON), SOL (SOL), XRP (XRP), BNB (BNB), ADA (ADA), TRX (TRX), AVAX (AVAX), SUI (SUI), and MOCA have shown better performance due to institutional support.

This institutional backing helps altcoins stand out in a saturated market, instilling greater confidence among retail investors. Institutions focus on long-term prospects rather than short-term gains, which can bring improved attention, focus, and liquidity to these altcoins.

Room for More Institutional Investment

There is significant potential for increased institutional investment in the crypto market. Institutional investors dominate the US equity market, holding 80% of the large-cap S&P 500’s market capitalization. However, their presence in the Web3 market is still relatively low and concentrated mainly on Bitcoin.

As of June 2024, 77% of institutional asset managers had allocated only 5% or less of their funds to cryptocurrencies and related assets. This highlights both the need and the opportunity for Web3 to foster a more balanced market, where institutional holdings could reach around 50%.

Greater institutional participation could introduce substantial new long-term capital and engender greater trust in Web3 projects. Projects capable of attracting institutional interest will stand out in this crowded market, providing a pathway to overcoming the problem of attention dilution.

Yat Siu, a guest columnist for Cointelegraph and co-founder of Animoca Brands, emphasized the importance of institutional support for Web3 projects. Animoca Brands has been actively involved in providing such support, participating in initiatives like the Hong Kong Monetary Authority’s stablecoin issuer sandbox and investing in projects like TON and Mocaverse.

With the current market dynamics, altcoins with solid institutional appeal and capability stand a far greater chance of success.