Risky Business: Recent surge in interest in altcoins thought to be unsustainable

October 4, 2021

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3 min read

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What's going on here?

Some experts believe the recent surge in investment in altcoins is likely to result in a crypto market crash reminiscent of that witnessed in May 2021.

What does this mean?

Altcoin is a term which encompasses all cryptocurrencies other than Bitcoin. Some examples include Ethereum, Cardano, Binance coin and Solana. Altcoins offer less expensive alternatives to Bitcoin and in recent months they have become increasingly popular, especially with young investors. Many believe that these currencies will experience a boom that follows in the footsteps of Bitcoin and as a result they view altcoins as a highly desirable and valuable investment

However, significant scepticism remains among many financial experts. JPMorgan’s crypto-expert Nikolaos Panigirtzoglou has said that the recent surge in altcoins appears unsustainable and believes that the boom of these new currencies could end in a crypto market crash. Bobby Ong, the cofounder and CEO of CoinGecko, said that excitement surrounding altcoins was “overblown for sure”. He described the situation as a typical crypto cycle: large-scale investment in Bitcoin is followed by increased interest in highly volatile alternatives, before a crash causes people to leave the market and then finally return to investing in Bitcoin again. 

What's the big picture effect?

Over the last decade the world has witnessed a crypto boom, with the combined crypto market now worth a mindblowing $2.1 trillion. Bitcoin has been the leading currency in this revolution and it is currently the world’s largest cryptocurrency by market capitalisation (circulation supply multiplied by the value of each unit). In March 2021 Deutsche Bank declared it to be ‘too important to ignore’, recognising that Bitcoin was the third-largest currency in the world in terms of the total value in circulation. 

However, since its launch in 2009, Bitcoin has been characterised by volatility. Many investors have been hesitant or reluctant to enter the crypto market because they view it as unstable. Governments have had to find ways to manage the rise of crypto in their countries, with India looking to ban private Cryptocurrencies (read our previous article here), and China developing its own government-backed digital currency (and here). 

In May 2021 the crypto market crashed. It was not only Bitcoin which decreased rapidly in value but since it was the most expensive currency, those who held assets in Bitcoin felt the effects of the crash most strongly. 

In recent months many investors have changed their assets from bitcoins to altcoins, and many first-time investors are preferring these new alternative cryptocurrencies. The volatility of the market makes these less expensive currencies more attractive than Bitcoin. They are affordable, they offer a significant growth potential and people have high expectations for their future success. To invest now while the currencies are relatively inexpensive could prove to be a very lucrative decision in the future. 

Cryptocurrencies have always been accompanied by a significant degree of doubt and uncertainty. Much of this stems from the volatility of the market and the subsequent risks involved in investing. However there is also anxiety surrounding the intentions behind those leading the crypto revolution. What began as a promise of a new age of decentralisation and even a potential end to corporate capitalism, has become another way for the financial elite as well as criminals and corrupt financiers to make their billions. Are people being sold a false dream when they invest in crypto: believing that they are part of a freeing decentralisation revolution, when in fact they are playing straight into the pockets of a handful of billionaires?

Report written by Elizabeth Ambrose

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