Bitwise executive cautions about exorbitant valuations of numerous subpar cryptocurrencies

Investors are being urged to approach crypto projects with caution due to the “wealth effect” taking place in the market, according to Bitwise Chief Investment Officer Matt Hougan. He explained that as traders reallocate their Bitcoin holdings into other cryptocurrencies, prices across the market are increasing. Hougan warned that the recent surge in Bitcoin’s price has led investors to invest in more questionable crypto tokens, potentially giving them a false sense of legitimacy. Altcoins, particularly memecoins and AI-themed cryptocurrencies, outperformed Bitcoin in the week leading up to March 7, as investors gained confidence and sought higher returns. Hougan stated that this trend occurs when investors make money in Bitcoin and then seek more speculative assets to invest in. This comes as Bitcoin reached a new all-time high of $70,184 on March 8. Charles Edwards, founder of Capriole Investments, believes this new high is fairly priced. Hougan also challenged the surprise surrounding the hype, pointing out that Bitcoin has only grown a few hundred percent from its lows. He explained that interest in the altcoin market is driven by the total market capitalization rather than Bitcoin’s rate of return. Despite the percentage increase being higher, the amount of wealth generated by Bitcoin’s rally is smaller in absolute dollar terms compared to previous cycles. Given the prevalence of scams in the crypto industry, investors are becoming increasingly skeptical of unknown crypto projects. In 2023, $1.8 billion was lost to Web3 hackers and scammers, making it more challenging for investors to determine whether a project is worth investing in. With the emergence of AI, this scrutiny is expected to become even more difficult. Blockchain analyst Jesse Leclere from CertiK warned that scams are becoming more advanced, and users need to remain vigilant.