Altcoins See Massive Inflows Amid Bitcoin’s Record Rally, But 2021 Bubble Warnings Persist

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As a seasoned crypto investor with battle scars from the 2021 crypto collapse etched into my portfolio, I find myself intrigued by the recent altcoin rally. While I’ve learned to never underestimate the unpredictability of this market, I can’t help but feel a glimmer of hope as I watch tokens like Solana soar and Ethereum inch closer to Bitcoin’s dominance.

In recent times, there’s been a notable increase in cryptocurrency prices, leading altcoins to surpass Bitcoin (BTC) in performance. This change is significant since the record highs seen in 2021. Interestingly, this rise occurs as Bitcoin approaches its all-time high of $100,000, a surge largely influenced by Donald Trump’s presidential election win, who is known for his pro-cryptocurrency stance.

Nevertheless, according to Bloomberg, the lingering doubt from the 2021 cryptocurrency crash is still noticeable among investors, since various alternative coins have shown significant price volatility throughout previous market fluctuations.

Expert Voices Skepticism On Altcoins Rally

Cryptocurrencies other than Bitcoin (Altcoins) have experienced significant growth this year. For instance, Solana (SOL) has hit record high prices, and numerous other tokens have seen their value more than double since January.

Generally speaking, altcoins often grow faster than Bitcoin when the market is rising, but they may fall more steeply during a downturn because of their greater volatility and smaller trading activity.

As a researcher observing the crypto landscape, I’ve noticed a cautious stance in the market following the collapse of major players like FTX and crypto lender Celsius. This event has significantly influenced the bear market. However, recent activity hints at a revival, with a surge in trading volumes and price increases among altcoins throughout November, suggesting that the market may be regaining momentum.

Notably, James Butterfill, the lead researcher at CoinShares, has voiced doubts regarding a significant surge in altcoins. This is primarily due to the possibility of forthcoming regulatory adjustments, such as plans for a national Bitcoin reserve.

Sen. Cynthia Lummis, a member of the Republican party, has proposed legislation known as the Bitcoin Act. This bill aims to use funds from the U.S. Federal Reserve’s gold reserves to purchase approximately 1 million Bitcoins as part of a strategic bitcoin reserve.

According to Butterfill, the enactment of this kind of law may have a profound impact on politics, possibly boosting Bitcoin’s influence compared to other digital currencies in the market.

ETF Approval Hopes Could Boost Crypto Interest Under Trump

Although Solana is currently the only significant altcoin that has managed to surpass its past records in 2021, financial analysts such as Nikolay Karpenko from the cryptocurrency trading firm B2C2 suggest that this current rally might not follow the same pattern as the one seen in 2021.

Over the last several years, the expert emphasized that the crypto industry has grown increasingly mature, leading to advancements in risk management and attracting a greater number of “strategic” and institutional investors.

Over time, it’s been noticed that altcoins are growing in popularity, and recent data indicates that the trading activity is progressively focusing on just the top five altcoins. This concentration has grown significantly, rising from below 50% at the start of the year to more than 60% this month.

This change can be traced back to distinct factors influencing various cryptocurrencies. For example, Solana’s surge is due to enthusiasm about potential Exchange-Traded Fund (ETF) approvals, while Dogecoin‘s growth is linked to its payment functionalities and the backing it receives from personalities like Elon Musk, as well as his appointment at the Department of Government Efficiency (DOGE).

Under Trump’s administration, it’s possible that more altcoins might be approved for ETFs, which could increase institutional investment. However, Butterfill advised caution, suggesting that the market may start to distinguish between assets based on their underlying qualities instead of merely following the trend of speculative trading.

Even though there’s a lot of optimism towards alternative cryptocurrencies, their prices are still substantially lower compared to Bitcoin. To be specific, Ethereum, which is the second biggest digital currency, costs approximately 4% as much as Bitcoin.

Following a record peak of $263 during last week’s surge, Solana has subsequently dipped to around $240, mirroring Bitcoin’s ongoing correction after reaching its new maximum value of $99,500. As I write this, SOL is climbing approximately 6% over the past day, and BTC is up by about 4% in the same time span.

Cover image from Dall-E, chart from Tradingview

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2024-11-28 09:04