The surge in altcoins looks unsustainable and has echoes of the run-up to May’s crypto crash, JPMorgan’s bitcoin expert says
More criticism incoming!
Cardano’s ada, binance coin, solana and other tokens have soared in price over the last few weeks, as excitement has built up around their potential use in decentralized finance (DeFi) and non-fungible tokens (NFTs). Most larger altcoins remain sharply higher for the month, even after the crypto market suffered a steep sell-off on Tuesday and another wobble on Friday.
But the rally doesn’t look sustainable, as it’s largely driven by unrealistic expectations about the tokens, according to Nikolaos Panigirtzoglou, a global market strategist at JPMorgan.
“There is a big question mark here,” Panigirtzoglou, who is the bank’s crypto expert, told Insider last week.
“Is the hype with cardano, binance, solana, [and other] alternatives to ethereum justified? Will there be enough traffic in these networks [and] wallet addresses, to justify these kind of valuations?”
It appears as though the crypto market is in a “melt-up” phase, he said, in which investors rush into assets that are rising in an effort to capture some of the gains. He noted such a phase often precedes a sharp fall.
“I think we could have a repeat of what we saw in May,” the strategist said. That month saw the crypto market — including bitcoin and ether — crash, following a rally in which altcoins such as dogecoin and XRP rocketed in price.
Likewise, altcoins have rallied sharply in recent weeks, with solana up 318% in the 30 days to Friday morning, according to data site CoinGecko. Cardano’s ada cryptocurrency was up 29% over the same period, while XRP was 23% higher.
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Retail investors have been drawn to certain tokens on networks that they expect will challenge ethereum to become widely used in the fast-growing worlds of DeFi and NFTs.
DeFi is the use of crypto technology to remove the need for middlemen in financial contracts, and NFTs are a booming asset class of crypto collectibles and artworks.
Bobby Ong, cofounder and CEO of CoinGecko, told Insider that excitement was “overblown, for sure.”
He sees it as a typical crypto cycle: Investors first pile into bitcoin, then turn to highly volatile alternatives in search of further gains, before a crash causes people to leave the market and eventually start buying bitcoin again.
Panigirtzoglou said he even saw some similarities with the crypto crash of 2018, which was also preceded by a surge in altcoins and ended with bitcoin losing more than 80% of its value. Yet he said the crypto market was unlikely to crash that hard again, because financial institutions and big companies such as Tesla had bought in.
There are dissenting voices, however. Curtis Ting, managing director for Europe at crypto exchange Kraken, doesn’t see the rise in altcoins as a red flag. He said a sharp sell-off in cryptos of the sort seen on Tuesday “helps the market reset itself.”
“A surge in altcoins helps diversify the asset class and create a feedback loop that could ultimately benefit the bitcoin price,” he told Insider.
