Chief investment officer of Bitwise Matt Hougan cautions that not all tokens experiencing a spike in value inside the cryptocurrency market are worthy of it.

Bitwise chief investment officer Matt Hougan warned investors to approach crypto projects with high valuations skeptically as the “wealth effect” is occurring in the crypto market. He indicated that traders are reallocating portions of their Bitcoin

BTC tickers down $69,647 into other crypto investments, causing price increases across the market.

In a recent series of posts on X, Hougan explained that Bitcoin’s recent price surge has led investors to spread their profits across more questionable crypto tokens, potentially giving them a false sense of legitimacy.

“Be careful out there. Lots of terrible projects get funded in exuberant bull markets and many are already trading at crazy valuations.”

According to Cointelegraph, during the week ending March 7, altcoins outpaced BTC, driven primarily by memecoins and cryptocurrencies with artificial intelligence (AI) themes.

According to Hougan, this is because investors became more confident following a rise in their Bitcoin holdings, which encouraged them to choose riskier investments in the hopes of earning larger profits.

"Bitcoin allows crypto natives to become wealthy, feel wealthy, and then hunt for more risky investments to make," he said.

This occurs in the context of Bitcoin achieving fresh all-time highs on March 8 of $70,184.

At about the same time, Cointelegraph reported that Charles Edwards, the creator of Capriole Investments, a digital asset fund and quantitative Bitcoin investor, thought that Bitcoin's recent all-time high was "fairly priced."

Hougan also disputed the popular narrative that highlights how surprising the enthusiasm is considering that Bitcoin has only increased by "a few hundred percent from the lows."

He stated that the overall market capitalization of altcoins is what drives interest in the market rather than the percentage return of Bitcoin.

“What catalyzes alt season is not the percentage return of bitcoin but the cumulative size of the wealth effect. And since the November 2022 lows, bitcoin’s market cap has grown by $1 trillion.”

In the meantime, he clarified that although the percentage increase was bigger, during prior Bitcoin price spikes, substantially less wealth was created.

"In contrast, earlier cycles generated greater wealth at this stage of the cycle on an absolute dollar scale, even though it was larger on a percentage scale," the author notes.

There is a greater degree of scepticism towards unidentified crypto ventures because of the volume of scams in the cryptocurrency space.

Immunefi, a blockchain security platform, said on December 28, 2023, that Web3 hackers and con artists stole $1.8 billion from people in 2023.

As AI becomes more prevalent, investors will likely find it harder to evaluate project founders and developers and decide whether or not to invest in a project.

Blockchain analyst Jesse Leclere of CertiK cautioned Cointelegraph once again that scams are only getting more sophisticated and that people should always be on the lookout for well-done vulnerabilities.