Altcoin
Analysts Discuss the Risks of Buying Altcoins Today
The cryptocurrency market has seen 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 model.
Why buying Altcoins now is risky
Quinn Thompson, founder of crypto hedge fund Lekker Capital, advised against invest in altcoins Right now. He highlighted several indicators of market instability, including high leverage and open interest, lack of panic buying and stagnation stable currency supply.
He believes the market is experiencing more 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think there is a serious cascading risk in the cryptocurrency sector and, in particular, I expect most altcoins to be withdrawn. The market seems to have lost all ability to rebound, even in the majors, while at the same time the leverage financial and open interest remain high,” Thompson said.
Depth of the Altcoin Market. 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 it changed the structure of the market. In the past, capital flowed from major cryptocurrencies such as Bitcoin and Ethereum altcoins during bull markets. However, with over $50 billion now invested Bitcoin ETFsthese funds do not have similar mechanisms for investing in altcoins.
This change has limited the capital available for altcoins, making it harder for them to increase in value. According to Samara Epstein Cohen, ETF Chief Investment Officer at BlackRock, traditional market participants are increasingly numerous focus on Ethereum for tokenizationwhich further sidelines altcoins.
To know more: How to invest in real crypto assets (RWA)?
The rapid launch of new altcoins has also flooded the market, creating significant inflationary pressure. Many projects release large quantities of tokens aggressively, resulting in supply that far exceeds demand.
Thompson pointed out that there is a lack of demand to support the roughly $3 billion in monthly altcoin supply inflation expected over the next year or two. 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 token supply unlocks and selling pressure from venture capitalists will likely be too much of a fight for most tokens,” Thompson concluded.
Meanwhile, Will Clemente, co-founder of Reflexivity Research, reflects on how the market has matured. In 2020, invest in high beta altcoins have been 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, if you get out of the risk spectrum, those things are going to have a higher beta than Bitcoin and you’re going to get long all the vaporware and all that stuff is going to go up. We haven’t seen that this time. A lot of altcoin-Bitcoin pairs are running out of steam for several months now and it hasn’t been as simple as buy any vaporware altcoin and you’ll outperform Bitcoin,” Clemente pointed out.
Technical analyst Michaël van de Poppe highlighted that Bitcoin is near or at an all-time high, while most altcoins have not reached their previous highs. This discrepancy indicates a lack of confidence in altcoins, which continue to struggle in the current market environment, suggesting that the days of easy profits by altcoins may be behind them.
To know more: Top 10 Altcoin Trades in 2024
Investors should be aware of the increased risks and consider new conditions before making decisions in the cryptocurrency market.
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