Two weeks into the year and crypto markets are recovering. The price of Bitcoin and Ether are each up about 20% on the seven-day chart. But a recent study on altcoins aims to give crypto investors pause before they trade.
When the market makes such a move, crypto traders often get mixed up. They trade to make a profit, to create hedges, or to take long positions in the coin they believe will gain the most next.
This could lead to increased volatility in crypto exchange markets. Furthermore, traders anticipate each other’s moves. As a result, the market can become increasingly volatile with self-fulfilling, short-term expectations. While this may sound complicated, trading crypto is worth a world of difference in ROI.
There is a wide range of risks and rewards
For example, if the top three cryptos by market cap gained 20% in the last week, here’s what some altcoins have gained: Cardano (ADA) gained 26%. Solana (SOL) scored 70%. Avalanche (AVAX) increased by 42%. Lido DAO (LDO) is up 42%. Aptos (APT) rose 94%.
Cardano has soared as ADA fundamentals have increased in volume. TVL (Total Value Locked) has increased. TVL on Cardano increased in January. Trading of its DeFi protocols also grew. There is also buzz around the new ADA stablecoin and a developer toolkit for deploying a custom ADA sidechain.
Meanwhile, Citi notes that Solana blockchain activity is high. AWS has partnered with Avalanche to bring its blockchain solutions to enterprises and governments.
Lido DAO continues to push ahead in an exciting race with MakerDAO. Solana peer Aptos is doing well due to investor enthusiasm for its fast throughput.
It’s easy to see why it’s tempting to go altcoin shopping. But before you whip out your credit card with eyes full of big numbers with dollar signs on them, don’t forget to be on the lookout for downsides. While your core investment can appreciate by 35% or 84% in a week, it can also disappear just as quickly.
91% of Cryptos launched in 2014 disappeared
A recent study found that 91% of cryptos launched in 2014 are now corrupt. 704 now-dead cryptocurrencies were launched in 2017. And 2018 was the worst year of crypto extinction, with 751 coins dying on their owners.
“We reviewed data from over 2,400 dead coins from Coinopsy, compiling data on the current status of each coin. We then analyzed the performance of each coin over the past 10 years, noting when the coins were killed and why.”
The research found some common themes in dead coins: scams, pranks, short-lived ICOs, and ones that were abandoned or lacked volume. Here are some red flags to look out for in failed cryptos of the past: How to avoid crypto rug pulls. And here are six tips on how to avoid DeFi scams.
It should be noted, however, that the number of failed cryptos should not at all give the impression that cryptocurrency is particularly risky or difficult. This is a failure rate similar to the economy-wide rate. New restaurants have a similar failure rate. New websites died during the Dot Com era and still do.
This distribution is also out of trade. Most of the outcomes of most systems are the result of a small minority of factors in the system. Crypto is hardly unique in this regard.
That doesn’t mean crypto is too difficult or risky to learn how to use. But it does highlight the importance of staying informed, taking it seriously, and knowing what you’re doing.
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