Bitwise CIO Warns Investors of Crypto 'Wealth Effect' and Increasing Scams
Summary:
Bitwise's Chief Investment Officer, Matt Hougan, advises caution to investors looking towards high-value cryptocurrency projects due to the "wealth effect." He notes that people are moving their Bitcoin earnings into other digital currencies causing a market price surge. This trend of diversifying profits into dubious crypto tokens might present them as falsely legitimate because of the increased confidence from investors. Hougan adds that interest in altcoins is not driven by the rate of return of Bitcoin, but by the total trading volume. He further warns about the escalating number of scams in the crypto industry, urging investors to be vigilant.
Matt Hougan, Chief Investment Officer at Bitwise, cautions investors to critically assess high-value crypto projects due to the prevailing "wealth effect" in the digital currency market. He noted that an observable trend among traders is the redirecting of their Bitcoin wealth into assorted cryptocurrencies, stimulating a rise in prices across the board. In a recent string of posts on X, Hougan shared his views that Bitcoin's escalating price has prompted investors to disperse their earnings into dubious crypto tokens, which run the risk of falsely appearing legitimate. He cautioned, "Exercise prudence. An over enthusiastic bull market tends to back numerous unworthy projects, many of which have already skyrocketed in value." Cointelegraph, on March 7, reported that memecoins and AI-centric cryptos headed altcoins in outdoing BTC over the past week. Hougan echoed sentiments that investor confidence bolstered by increase in investments prompts them to consider riskier avenues with the hopes of better returns. "Cashing in on Bitcoin, investors develop a confidence which pushes them to gamble on more uncertain assets," he opined. This observation comes in the wake of Bitcoin achieving unprecedented highs, hitting $70,184 on March 8. Charles Edwards, who helms Capriole Investments, a quantitative Bitcoin and digital asset fund, thinks that these new peaks in Bitcoin's price are rationally justified, as Cointelegraph reported. Hougan also addressed the widespread astonishment sparked by the Bitcoin hype, observing that although it has barely grown "a few hundred percent from the lows," the focus in the altcoin world is not rooted in Bitcoin's rate of return percentage, but rather in the overall trading volume. He added that invigorated interest in altcoins is stimulated more by the extensive reach of the wealth effect, not by Bitcoin's percentage return. Indeed, since the critical November 2022 market lows, Bitcoin's market capitalization has mushroomed by $1 trillion. However, Hougan elaborated that even if the percentage increase spikes were greater in prior cycles when Bitcoin's prices surged, the absolute wealth created was much smaller. Due to the prevalence of crypto scams, investors are treading due diligence into unknown crypto projects. Blockchain security agency Immunefi recorded a whopping loss of $1.8 billion to Web3 hackers and tricksters in 2023. With more and more investors basing their crypto investments on project founders and developers, the advent of artificial intelligence makes this assessment increasingly complex. Leclere from CertiK advised Cointelegraph, further strengthening this sentiment, stating that swindles are becoming more ingenious and users need to stay vigilant against deftly executed exploits.
Published At
3/9/2024 4:08:28 AM
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