Markets
Analysts Discuss the Risks of Buying Altcoins Today
The cryptocurrency market has undergone significant changes, leading many analysts to warn 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 pattern.
Why Buying Altcoins Now Is Risky
Quinn Thompson, founder of crypto hedge fund Lekker Capital, advised against investing in altcoins Right now. He pointed to several indicators of market instability, including high leverage and open interest, lack of panic buying and stagnation. stable coin to supply.
He believes the market is experiencing increasing selling pressure, especially from venture capital funds that need to raise capital, which leads to more selling than buying. This situation, combined with low summer trading volumesmakes it difficult for altcoins to gain traction.
“I think there is a serious risk of cascading in crypto and in particular I expect most altcoins to be delisted. The market appears to have lost any ability to recover, even at large companies, 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 issue of altcoin supply inflation.
The introduction of Bitcoin and Ethereum ETF changed the structure of the market. In the past, capital would flow from major cryptocurrencies such as Bitcoin and Ethereum to altcoins during bull markets. However, with more than $50 billion now invested in Bitcoin ETFsthese funds do not have similar mechanisms for investing in altcoins.
This change limited the capital available to altcoins, making it more difficult for them to increase in value. According to Samara Epstein Cohen, Director of ETF Investments at BlackRock, traditional market participants increasingly focus on Ethereum for tokenizationwhich further marginalizes altcoins.
See more information: How to invest in real-world crypto assets (RWA)?
The rapid launch of new altcoins has also flooded the market, creating significant inflationary pressure. Many projects release large amounts of tokens aggressively, resulting in supply that far exceeds demand.
Thompson highlighted that there is a lack of demand to support the approximately $3 billion of monthly inflation in altcoin supply expected over the next one to two years. While some altcoins may still perform well, identifying these successful tokens will be more challenging than in previous years.
“Altcoins have a constant flow of selling pressure. As we enter an already low-volume summer period, the combination of significant unlocks in token supply and selling pressure from venture capitalists will likely be too much of an uphill battle for most tokens,” concluded Thompson.
Meanwhile, Will Clemente, co-founder of Reflexivity Research, reflected on how the market has matured. In 2020, invest in high beta altcoins were profitable strategy, as these assets have 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 for Bitcoin and you just buy all the vaporware and all these things go up. We didn’t see that this time. Many altcoin to Bitcoin pairs have been bleeding for several months and it has not been as simple as buying any vaporware altcoin and you will outperform Bitcoin,” Clemente emphasized.
Technical analyst Michaël van de Poppe highlighted that Bitcoin is at or near its all-time high, while most altcoins have not reached their previous highs. This discrepancy indicates a lack of confidence in altcoins, which continue to face difficulties in the current market environment, suggesting that altcoins’ days of easy gains may be overcome.
See more information: 10 Best Altcoin Exchanges in 2024
Investors should be aware of increased risks and consider new conditions before making decisions in the cryptocurrency market.
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