Liquidity Trap Tightens: How Crypto Insiders’ Withdrawal Impacts Retail Investors
By John Nada·Dec 24, 2025·4 min read
The withdrawal of crypto insiders from new token purchases has created a liquidity trap, leaving retail investors vulnerable and facing significant losses. A stark warning for those considering entering the market.
In a stark transformation of the cryptocurrency landscape, the dynamics of token purchases have shifted dramatically. Over 80% of the tokens introduced this year are currently trading below their initial valuations, signaling a significant cooling in market enthusiasm for new ventures. The data reveals a troubling trend where insiders have largely ceased their buying activities, leaving retail investors grappling with a harsh reality.
This sudden withdrawal creates a liquidity trap, leaving new tokens vulnerable and severely impacting retail buyers. With industry insiders, often better positioned to absorb risks, stepping back, retail investors find themselves disproportionately affected by price volatility. As a result, the market is witnessing a compounded effect: the lack of institutional support paired with rising pressure from uninformed buyers is creating an uphill battle for those newly entering the space.
Historical trends point to a similar phenomenon in the past, notably during the 2018 bear market when investor confidence plummeted after many initial coin offerings (ICOs) failed to deliver on their promises. Back then, a significant number of projects fell victim to regulatory scrutiny and subsequently collapsed, causing a widespread loss of capital. The current situation mirrors that experience, where the number of successful projects has dwindled, and new entrants are left stranded in a fragile ecosystem. As of now, only around 16% of tokens launched this year are managing to hold even a fraction of their original value, raising serious concerns about the sustainability of these projects.
Data from Memento Research indicates that out of 118 major token generation events tracked in 2025, a staggering 100 are trading below their fully diluted valuations. For retail investors, this represents a challenging landscape. Investors who entered at the peak may struggle to recover their investments, while those considering entry might be deterred by the daunting statistics. With many projects failing to generate interest or provide utility, potential investors must weigh their options carefully, taking into account the long-term viability of their choices.
A liquidity trap, by definition, arises when there is a lack of capital flowing into the market, often leading to stagnant prices. This phenomenon is especially pronounced as liquidity tends to dry up when investor confidence wanes. During times of uncertainty, cautious investors recoil from new projects, further compounding the problem. Without robust backing and enthusiasm from seasoned players, the allure of new tokens diminishes, leaving only those with the most solid fundamentals standing a chance.
The regulatory landscape is another critical factor in this equation. As lawmakers worldwide continue to grapple with how best to regulate cryptocurrencies, uncertainty looms large. Insiders' retreat might be influenced, in part, by the potential for regulatory crackdowns on projects that don’t comply with existing financial laws. Many token launches are now perceived as fraught with risk, leading to a defensive posture among seasoned investors who historically had a crucial role in providing liquidity and support during tumultuous times.
Moreover, market trends suggest a growing skepticism among investors regarding the value of new tokens. As narratives surrounding cryptocurrencies evolve, the crypto community is becoming increasingly discerning. Retail investors, often swayed by hype, must become vigilant to avoid being caught in the next wave of unsuccessful launches. The current environment requires a strong emphasis on due diligence, with a keen understanding of the underlying technology, purpose, and team behind each project. Those who overlook these aspects may find themselves further entrenched in losses as the market continues to recalibrate.
Looking ahead, it remains to be seen how the market will adapt to these challenges. The cycle of crypto investment is often a feverish dance between exuberance and despair. If institutional investors can find ways to re-enter the market with confidence, it could spark a renewed interest in new projects. However, as long as the current liquidity trap persists and skepticism reigns, retail investors must proceed with caution, armoring themselves with knowledge and a clear understanding of the market’s shifting tides.