Altcoins
Analysts Discuss the Risks of Buying Altcoins Today
The cryptocurrency market has seen significant changes, leading many analysts to caution against investing in altcoins.
Historically, bull markets have seen Bitcoin and Ethereum rise first, followed by altcoins. However, current conditions suggest a change in this trend.
Why buying Altcoins now is risky
Quinn Thompson, founder of crypto hedge fund Lekker Capital, informed against invest in altcoins Right now. He pointed to several indicators of market instability, including high leverage and open interest, a lack of panic-driven buying, and market stagnation. stable coin provide.
He believes the market is under increased selling pressure, particularly from venture capital funds that need to raise capital, leading to more selling than buying. This situation, combined with low summer trading volumesmakes it difficult for altcoins to gain traction.
“I think there is serious cascading risk in crypto and, in particular, I expect most altcoins to be delisted. The market appears to have lost any ability to rebound, even at the majors, while at the same time leverage and open interest remain high,” Thompson said.
Altcoin Market Depth. Source: Kaiko
Thompson identified two main reasons for his position. First, the impact of Bitcoin and Ethereum Exchange Traded Funds (ETFs) and the question of altcoin supply inflation.
The introduction of Bitcoin and Ethereum ETF changed the structure of the market. In the past, capital flowed from major cryptocurrencies like Bitcoin and Ethereum to altcoins during bull markets. However, with over $50 billion now invested in Bitcoin ETFthese funds do not have similar mechanisms for investing in altcoins.
This change has limited the capital available for altcoins, making it more difficult for them to increase in value. According to Samara Epstein Cohen, director of ETF investments at BlackRock, more and more traditional market participants are to focus on Ethereum for tokenizationwhich further marginalizes altcoins.
Learn more: How to Invest in Real World Crypto Assets (RWA)?
The rapid launch of new altcoins has also flooded the market, creating significant inflationary pressures. Many projects release large amounts of tokens aggressively, resulting in supply that far exceeds demand.
Thompson pointed out that there was a lack of demand to support the monthly altcoin supply inflation of around $3 billion expected over the next two years. Even though some altcoins may still perform well, identifying these successful tokens will be more difficult than in previous years.
“Altcoins are experiencing a constant stream of selling pressure. As we enter an already low volume summer period, the combination of a large token supply unlock and selling pressure from venture capitalists will likely be too much of a battle for most tokens” , concluded Thompson.
Meanwhile, Will Clemente, co-founder of Reflexivity Research, reflected on the maturity of the market. In 2020, invest in high beta altcoins were profitable strategy because these assets outperformed Bitcoin. However, this approach is no longer effective.
Many altcoins have underperformed Bitcoin in recent months, indicating that market dynamics have changed.
“In 2020 you get into the risk spectrum, these things are going to have a higher beta than Bitcoin and you just get long, all the vaporware and stuff goes up. We didn’t see that this time. A lot of the altcoin-Bitcoin pairs have been bleeding for several months now and it hasn’t really been as simple as buying any vaporware altcoin and you’ll outperform Bitcoin,” Clemente pointed out.
Technical analyst Michaël van de Poppe Underlines that Bitcoin is near or at an all-time high, while most altcoins have not reached their previous highs. This gap indicates a lack of confidence in altcoins, which continue to struggle in the current market environment, suggesting that the days of easy gains from altcoins may be over.
Learn more: 10 Best Altcoin Exchanges in 2024
Investors should be aware of increased risks and take new conditions into account before making decisions in the cryptocurrency market.
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