Cryptoverse: After Bitcoin ‘Winter’, Investors Seek Risks in Virtual Worlds

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As bitcoin moves toward mainstream maturity in 2022, bold crypto investors are looking for new sources of explosive action: “altcoins” that power online games and worlds. But beware, the foothills of the formless metaverse They are no place for the faint-hearted.

Bitcoin, which like the rest of the market has been tanking heavily since the end of 2021, has risen around 16% in the past two weeks to break above $41,000, prompting many market players to declare the end of the “crypto winter”. However, newer and smaller coins tied to virtual platforms have enjoyed stronger rallies amid the hype around the metaverse.

Those used in the Axie Infinity gaming platform and the Decentraland 3D virtual environment, for example, Axie and Mana, have gained 35% and 57% respectively in the same period since January 24. The Gala gaming platform token has increased by 125%. according to CoinMarketCap.

“When people think of crypto, they tend to think of bitcoin,” said Ed Hindi, chief investment officer at Switzerland-based crypto hedge fund Tyr Capital. “But this ignores the fact that cryptocurrencies are not a single risk asset class.”

However, to give an idea of ​​scale, the combined market capitalization of Axie, Gala and Mana is roughly $12.7 billion, a fraction of bitcoin’s $800 billion plus, which commands 40% of the market. market.

Some investors are looking to alternative currencies to diversify their holdings, as 13-year-old Bitcoin and No. 2 player Ethereum increasingly move in step with traditional stock markets and become more sensitive to macroeconomic developments.

In a possible sign of this momentum, multi-asset funds managing a mix of currencies saw inflows totaling $32 million in the week ending Jan. 28, the most since June 2021, according to CoinShares data.

However, the sheer novelty of many of these coins and the consequent lack of track record significantly increases the risk for investors in an already risky and nebulous crypto world. Furthermore, Axie and Gala’s fortunes are tied to the success of their gaming platforms, as well as the virtual economy in general.

bottom of the blockchain

However, digging deeper into virtual plumbing, some market observers say that the growing interest in the metaverse is also benefiting altcoins that sit on the blockchain’s “Layer 1” protocol, the base level at which Smart contracts are written between buyers and sellers. code, and on which games and virtual worlds are built.

They include ether from the Ethereum blockchain and its challengers Solana and Polkadot, which are up 27%, 28% and 23% in the last two weeks.

“A lot of people are looking at this as a buying opportunity and what they’re buying are high-quality blue chip altcoins instead of bitcoin right now,” said Hany Rashwan, CEO and co-founder of US-based crypto fund manager 21Shares. New York and Zurich, referring to coins on the Layer 1 blockchain, which also include Avalanche, Polygon, and Terra.

“If you’ve developed a thesis on smart contracts, that’s a wonderful buying opportunity right now.”

Where is Bitcoin headed?

Back to bitcoin: Although the dominant cryptocurrency is recovering after nearly halving in value between early December and Jan. 24, its upward trajectory is far from certain, according to coverage indications and other data .

Will Hamilton, head of trading and research at Trovio Capital Management, cites futures funding rates, which have been negative since early December, as suggesting people are paying to go short. And he also points to options data showing options to sell bitcoin vs. buy the put/call ratio has reached 58%, a level last seen in the May-July 2021 sell-off.” this period of consolidation, changes in the derivatives market indicate that traders continue to bet on further downside,” he said.

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