More than 13,000 cryptocurrencies are in circulation. Will bitcoin's rise extend to riskier tokens?

Article by Steven Ehrlich for Forbes US – translated by Flora Lucas

Last week, bitcoin surpassed $69,000 for the first time in its 15-year history. This milestone was reached 848 days after its previous high, reached on November 8, 2021. In the months and years that followed, the sector faced a severe down market that caused the price of active by more than 80%, leading to the disappearance of more than $2 trillion in value across the entire cryptocurrency market.

Today, the price of bitcoin is supported by ten exchange-traded funds (ETFs) offered by companies such as BlackRock, Fidelity and Invesco, which have collectively brought more than $7.5 billion in new money to the sector. cryptocurrencies.

“Bitcoin goes through down and up cycles that are different from the rest of the market,” says Nathan McCauley, CEO and co-founder of cryptocurrency custodian Anchorage Digital. “Many people who might have been interested in a position in bitcoin over the past decade were unable to do so until ETFs launched. »

Will other digital assets take center stage?

Bitcoin's surge raises an important question for investors: Will this story remain bitcoin's, or will other digital assets or “use cases” take center stage? Cryptocurrency enthusiasts are hoping the market will soon move into another “alt season.” This happens when investors shift profits made from core crypto assets such as bitcoin and ethereum to more speculative tokens such as solana, celestia and chainlink, with increased levels of volatility, but potentially higher gains. .

In 2017, funds moved from bitcoin to ethereum and other all-in-one blockchain platforms such as Cardano and Polkadot. During the covid surge in 2021, money shifted to NFTs and even more speculative decentralized finance tokens such as uniswap, compound, and aave. In fact, these DeFi tokens increased on average by almost 600% during the first phase of the covid surge, between August 2020 and May 2021. Bitcoin increased by almost 470% during the same period.

When crypto euphoria spreads beyond bitcoin, investors tend to pay attention to a metric known as bitcoin dominance, which measures the percentage of the total crypto market capitalization that is bitcoin. This figure has hovered around 50% since the ICO boom of 2017, but when demand heats up for alternative tokens, it can fall below 40%, as it did in January 2022, a few months before the collapse of the Terra blockchain and its stablecoin luna triggers a crash in cryptocurrencies. Currently, bitcoin’s dominance level remains at 53%.

“Tech tokens are underappreciated right now,” says Kavita Gupta, founder of the $120 million Delta Blockchain Fund, which invests in early-stage cryptocurrency companies. “Ethereum, solana and polygon have seen some recovery, but they are far from their all-time highs. » Over the past three months, Ethereum is up 60%, while Ethereum blockchain clone Solana has nearly doubled in price. Polygon, which allows developers to build multiple blockchains from ethereum, gained about 33%. Other altcoins that have advanced include immutableX, a blockchain platform focused on gaming applications, which is up 118% since late December, and avalanche, an ethereum competitor that is making significant inroads by staking assets of the real world on the blockchain. This token is up 63% over the past three months.

Earnings below 2021 highs

Despite these gains, overall cryptocurrency valuations remain below the euphoric highs of 2021. For comparison, as of November 2021, the entire crypto token ecosystem was worth $3 trillion, compared to less than $2.5 trillion. dollars today. Despite the collapse of cryptocurrencies since the start of 2022, the number of digital assets has increased. Today, 13,000 tokens are trading compared to 5,600 at the market peak.

Nico Cordeiro, chief investment officer of the $50 million hedge fund Strix Leviathan, is sitting on a portfolio full of speculative Altcoins. “We expect another big rise in Altcoins,” enthuses Nico Cordeiro. “Bitcoin ETFs are one of the main drivers of this price movement, but there is more to cryptocurrencies than just bitcoin and ether. » One area that Nico Cordeiro finds particularly interesting is platforms that allow users to transfer tokens from one blockchain to another. This is especially useful for developers who don't want to be locked into a specific channel. It is much more efficient to create an application that can run on multiple blockchain platforms simultaneously. Interoperability protocols provide this connective tissue. For example, decentralized exchange Uniswap uses these tools to transition its platform from Ethereum to other chains such as Binance's BNB chain. Leaders in this specialty include Celestia, which is up 70% over the past three months, and Thorchain, which is trading almost 50% higher than a month ago, according to CoinGecko.

There's an army of speculators like Cordeiro eager to see a re-inflating of the cryptocurrency bubble, but some smart industry veterans believe the recent introduction of fully registered and regulated exchange-traded funds has been a game-changer. “I think bitcoin ETFs will curb this trend (of investing profits in Altcoins) over time because bitcoin is in an ETF,” says Alex Thorn, head of research at Galaxy Digital, the 4 company, 6 billion dollars led by billionaire Mike Novogratz. “This is especially true if it is an account managed by an advisor, which is likely to be much stickier than bitcoin on an exchange and is not easily convertible to other coins of currency. »

In other words, as investors and institutions move into bitcoin, and eventually ether, through ETFs, they will do so through traditional intermediaries, such as financial advisors. This creates more friction when it comes to speculative cryptocurrency trading. “If an Ether ETF is approved, funds will remain blocked in customer accounts. This development could even further harm the remaining liquid cryptocurrencies,” explains Alex Thorn.

Bitcoin Halving Next Month

Molly White, cryptocurrency critic and owner of the website “Web3 Is Going Just Great,” is even more blunt in her warning to investors considering investing in risky Altcoins. “I don't think much has changed since the last time (cryptocurrencies reached) all-time highs that would prevent the same types of crises from happening again,” she says. “In 2021, there was a lot of talk about NFTs, about Web3 being the future of the internet, and all these stories about the enormous potential of blockchains and related technology. That's not the case this time, but once the new money flowing into bitcoin runs out, I think the cryptocurrency industry will try to invent these narratives as best it can to attract individual investors. »

With a possible ether ETF not expected before the end of May, all eyes remain on bitcoin, the invention of Satoshi Nakamoto. The next key event for bitcoin traders and miners will be the bitcoin halving next month, an event that occurs once every four years and during which the bitcoin issuance rate is reduced by 50%. . This process will continue until 2140, when the 21 millionth and final bitcoin will be mined. At the same time, more wealth management companies are starting to integrate new bitcoin ETFs into their platforms. Recently, Wells Fargo and Bank of America's Merrill Lynch began allowing their clients to invest in these products. Morgan Stanley is also reportedly evaluating bitcoin ETFs for its clients.

Jon Markman, technology analyst and newsletter editor Markman Capital Insight in Seattle, believes bitcoin could benefit from renewed interest from institutional investors whose portfolios are underperforming in the current market. “Professionals will want to catch up. Those who stayed in cash didn't expect the market to go up, and bitcoin is a good way to get additional exposure,” says Jon Markman.

Cathie Wood, who manages Ark Invest, a $13 billion fund, believes each new investment will have a disproportionate impact on the price of bitcoin. “There are 19.6 million bitcoins, and the most they'll go to is 21 million,” Catie Wood said on her recent podcast. “There is a real scarcity value. The price increase for each institutional dollar that comes in today is much higher than it was a year or two ago. »

Also read: Stock Market-Finances | Challenges and perspectives for cryptocurrencies and blockchain

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