Expert Warns Against Overvalued Cryptocurrencies

Investors should approach highly valued crypto projects with skepticism due to a “wealth effect” in the market, cautioned CIO of Bitwise, Matt Hougan.

1/ Lots of discussion out there about the early start of alts season, and some surprise that it’s happening given bitcoin is “only” up a few hundred percent from the lows.

Some thoughts.

— Matt Hougan (@Matt_Hougan) March 8, 2024

According to him, traders have gained confidence and are reallocating some of the profits from bitcoin’s appreciation into dubious crypto assets, hoping for higher returns. As a result, these assets gain a false sense of legitimacy.

“Exercise caution. Many ‘terrible projects’ are funded in exuberant bull markets. Most are already trading at ‘crazy prices’,” the expert wrote.

Hougan challenged the narrative of the unexpected excitement surrounding altcoins. He noted that bitcoin’s growth was only “a few hundred percent from the lows.”

The Bitwise CIO stated that the interest is driven not by the relative price increase of the leading cryptocurrency, but more by the dynamics of overall capitalization.

“The catalyst for alt season was the cumulative wealth effect. Since the November lows, bitcoin’s total market value has increased by $1 trillion,” the expert explained.

He observed that in previous cycles, sharper price jumps in digital gold were not accompanied by such a noticeable increase in dollar-generated wealth.

Cointelegraph noted that heightened skepticism towards unknown crypto projects is due to the increased number of fraud cases in the industry. The widespread use of AI for illegal purposes could complicate the task of selecting investment assets, journalists added.

In 2023, the total damage from hackers and scams amounted to $1.8 billion, according to Immunefi.