Bitwise Chief Investment Officer Matt Hogan has warned investors to approach highly valued crypto projects with skepticism due to a “wealth effect” occurring in the crypto market. He noted that traders are reallocating some of their Bitcoin (BTC) to other crypto investments, causing a market-wide price increase.
In recent series, Post On X, Hogan said Bitcoin’s recent price surge may be causing investors to spread their profits across more questionable crypto tokens, giving them a false sense of legitimacy. He explained.
“Be careful out there. Many terrible projects have been financed in a hot bull market, and many are already trading at outlandish valuations.”
On March 7, Cointelegraph reported that altcoins outperformed BTC last week, led by meme coins and artificial intelligence (AI)-themed cryptocurrencies.
Hogan reiterated that this is because investors have gained confidence from increased investment in Bitcoin and are choosing riskier investments in hopes of higher returns.
“Crypto natives make money with Bitcoin, feel wealthy, and then look for more speculative investment assets,” he declared.
This comes as Bitcoin hits a new all-time high on March 8, reaching $70,184.
Around the same time, Cointelegraph reported that Charles Edwards, founder of quantitative Bitcoin and digital asset fund Capriol Investments, believed Bitcoin’s new all-time high was a “fair price.” .
Hogan also took issue with the broader discussion about the surprise of the hype, given that Bitcoin has only grown “a few hundred percent from its lows.”
He pointed out that interest in the altcoin market is not driven by Bitcoin’s return as a percentage, but rather by market capitalization.
“It is the cumulative magnitude of the wealth effect, not Bitcoin’s rate of return, that drives the alternative season. And since the November 2022 low, Bitcoin’s market capitalization has increased by $1 trillion.”
On the other hand, he explained that when the price of Bitcoin spiked in the past, the amount of wealth created was relatively small, even though the rate of increase was high.
“In comparison, in earlier cycles, the amount of wealth created by Bitcoin’s rise was large on a percentage scale but small on an absolute dollar scale at this stage of the cycle,” he explains. .
Related: Bitcoin traders expect new highs, according to stablecoin flows to exchanges
Given the amount of fraud in the crypto industry, skepticism towards unknown crypto projects is on the rise.
On December 28, blockchain security platform Immunefi reported that a total of $1.8 billion was lost to Web3 hackers and fraudsters in 2023.
Investors scrutinize project founders and developers to determine whether a project is worth investing in, but with the advent of AI, this is expected to become even more difficult.
Jesse LeClair, Blockchain Analyst at CertiK, warned Cointelegraph that scams are only going to get more sophisticated and users need to remain on high alert for well-executed exploits. .
magazine: Will it be foolish to measure blockchain transactions per second (TPS) in 2024? The big question
