Venture Capitalist Warns of Potential Altcoin Shakeout as Profit-Taking Intensifies

As the altcoin market continues to see significant gains, a prominent venture capitalist is warning of a potential near-term correction that could catch traders off guard. With institutional investors increasingly looking to take profits, the market may be poised for a sharp downturn once momentum shifts, according to Felix Hartmann, managing partner at Hartmann Capital.

Altcoin Market Sees Strong Gains, But a Shakeout May Be Coming

The altcoin market has experienced substantial growth, particularly following the U.S. presidential victory of Donald Trump. However, Hartmann cautioned that the rally may soon face a significant pullback. In a Dec. 7 post on X (formerly Twitter), he suggested that traders, particularly retail investors, may be acting irrationally, and warned that the onset of a correction could trigger a series of sharp price moves, often referred to as "murder wicks" in trading parlance.

Hartmann pointed out that many altcoins currently have funding rates above 100% annualized, driven largely by perpetual traders rather than spot market activity. This dynamic has resulted in a highly leveraged market, which could lead to dramatic price movements once the market shifts.

“The leg down will be ugly,” Hartmann stated, referring to the potential for a sharp and volatile correction as momentum wanes.

Altcoins Post Strong Gains, But History Suggests a Potential Reversal

Since Nov. 1, several altcoins have posted impressive gains, including Hedera (HBAR), which has risen by 99.31%, IOTA (IOTA) with a 79.61% increase, and JasmyCoin (JASMY), which has gained 72.47%, according to CoinMarketCap data. However, these gains raise concerns that the market may be overheated, especially considering that past altcoin seasons have often been followed by steep corrections.

In 2021, for example, several altcoins saw massive gains only to experience sharp declines. Solana (SOL) reached an all-time high of $248.36 in November 2021, only to crash by 64% to $89 by January 2022. XRP (XRP) also experienced a steep decline, losing 51% over the same period. Such volatile swings have led many to anticipate that the current altcoin rally could face a similar fate.

Contrasting Views: Some Traders See Further Upside

Despite the warnings, other traders remain optimistic about the altcoin market’s future. Pseudonymous trader MilkyBull Crypto, for example, argued in a Dec. 6 X post that the current period, from now until March, aligns with a typical altcoin season, which he suggested tends to last about 90 days.

"Altseason has just started," added another trader, Sensei, to his 72,900 X followers. This optimistic outlook reflects the ongoing interest in altcoins, particularly as Bitcoin dominance has seen a decline, signaling a shift toward altcoins. At the time of publication, Bitcoin dominance stood at 55.11%, down 7.88% over the past 30 days, according to TradingView data.

Bitcoin Dominance and Funding Rates: Key Indicators for Altcoin Moves

Traders often monitor Bitcoin’s dominance as a key indicator for the onset of altcoin season. The decline in Bitcoin dominance suggests that altcoins could continue to gain traction in the near term. Additionally, data from CoinGlass shows that the 30-day funding rate for perpetual futures has risen significantly, with leveraged traders paying between 4% and 6% per month to maintain their positions.

While these high funding rates may seem manageable during strong uptrends, they can quickly erode traders' margins if prices stagnate or experience a downturn. As funding rates continue to climb, the risk of a shakeout increases, particularly for those heavily leveraged in altcoin positions.

Conclusion

The altcoin market is at a crossroads. While there are signals of continued growth, particularly with the decline in Bitcoin dominance, venture capitalists and experienced traders caution that the current rally may be reaching its peak. With institutional investors beginning to take profits, and many altcoins showing high funding rates and leveraged positions, a sharp correction could be on the horizon. Traders will need to be cautious and prepared for potential volatility, as the market adjusts to the changing dynamics of the broader crypto landscape. Whether the current altcoin season will extend into 2025 or face a steep decline remains to be seen, but one thing is clear: the risks of a dramatic market shift are increasing.