Altcoins provide a variety of unique, advanced capabilities, promising technological advancements, and potentially rewarding investment prospects.
Many times, certain altcoins have seen returns that surpass those of Bitcoin (BTC), which is commonly referred to as altcoin season. However, research conducted by K33 Analysis has revealed that, in the long run, investing solely in Bitcoin has been a more profitable strategy than investing in an altcoin portfolio.
Altcoin portfolio underperformed Bitcoin over the long run
Bitcoin has experienced three successive bull and bear market cycles, beginning in 2013 and the most recent one arriving in 2021. During each cycle, Bitcoin’s cost skyrocketed in a brief time frame, normally a few months, after surpassing the peak of its prior cycle.
In 2013, BTC reached a high of about $1,175 before beginning a downward trend for two years. At that time, the altcoin market was still in its infancy. Few options existed for exchanging fiat currency for Bitcoin, and even fewer existed for converting Bitcoin to altcoins.
By the end of 2015, the invention of Ethereum and other altcoins had taken place. Furthermore, some exchanges had emerged that allowed for the exchange of Bitcoin to other cryptocurrencies, thus creating a market for altcoins.
In April 2017, when Bitcoin’s value surpassed its 2013 peak, a positive trend in altcoins began. From the latter half of 2017 to early 2018, due to the rise of ICOs on Ethereum and the public’s enthusiasm for Ripple’s XRP, many tokens outperformed Bitcoin.
Despite the bull market, altcoins experienced greater losses than Bitcoin. This indicated that altcoins increased in value mainly because people purchased them during Bitcoin’s bull market in the expectation of higher returns.
The graph of Bitcoin and altcoin market capitalization indicates that during the bear market of 2018-2019, Bitcoin stabilized near $6,500 after bouncing back from a nadir of $3,250 in late 2018. In contrast, altcoins lingered around their minimums for the majority of the bear market and only began to trend upward after Bitcoin rose above its former apex of $20,000.
Research conducted by K33 calculated the performance of an investment of $1 in 1,009 altcoins since 2015, when they entered the top 100 ranks by market capitalization on CoinMarketCap, compared to the same amount invested in Bitcoin at the same time.
The value of an altcoin portfolio today would be estimated at around $7,000, as opposed to the $50,000 that would have been achieved with a Bitcoin-only strategy.
Altcoins are often driven by their narrative, and as the market evolves, many of these narratives end up fading away. For example, privacy-focused tokens were very popular in 2017, but due to increased regulatory oversight, they have fallen out of the top 100 cryptocurrencies by market capitalization.
Many DeFi tokens such as Compound (COMP) and Thorchain (RUNE), which gained attention in 2020, have dropped from the top cryptocurrency list due to a decrease in DeFi usage and, as a result, a decrease in the demand for holding non-yielding governance tokens.
Altcoins are known to be volatile and prone to sudden shifts due to the regulatory uncertainty that surrounds most tokens. Each altcoin may experience its own season at different times and the length of an altcoin season can be highly unpredictable, making it essential for investors to time their investments correctly in order to make a profit.
Analysts from K33 have discovered that since 2015, more than two-thirds of the 1,009 altcoin projects that made it into the top 100 rankings by market capitalization have since become inactive. Only 9.11% of these altcoins yielded positive returns, with only a small fraction (1.5%) beating Bitcoin’s 50X returns.
The reporter noted that altcoin investments have only been profitable twice since 2015 – in 2017, when ether (ETH) and XRP (XRP) saw significant gains, and in 2021 when the altcoin portfolio briefly matched Bitcoin’s value due to the surge in interest in Dogecoin (DOGE) and Shiba Inu (SHIB).
Notably, during the second half of 2021 when Bitcoin rose back up to the $60,000 level from March 2023 and reached new all-time highs at $69,000, altcoins, excluding ETH, saw relatively modest gains.
Positive breakout in Bitcoin’s dominance
Besides Bitcoin reaching an all-time high, another significant sign that can be used to determine when an altcoin is reversing its long-term trend is when Bitcoin’s dominance level breaks out from critical levels.
In the past two cycles, altcoin seasons were characterized by Bitcoin’s dominance dropping below 60%. When the bullish trend reversed, the lowest point of Bitcoin’s dominance was also the highest point of the total market capitalization of altcoins.
If past trends are any indication, Bitcoin’s control of the cryptocurrency market could increase while other digital coins remain relatively stagnant.
A breakout in Bitcoin’s dominance above 50% on June 19, 2023, due to BlackRock’s Bitcoin ETF filling, has created an opportunity for additional altcoin losses as it was a significant historic resistance point.
In the second half of the preceding bear market, which stretched from 2018 to 2020, Bitcoin’s dominance rose to above 70%. On the other hand, Bitcoin’s performance was comparatively better as its rate remained greater than the 2018 floor of around $3,250. K33 Research also reveals that this time period signified remarkably poor altcoin performances, dropping to new lows.
The crypto industry is “fated” to be centered around Bitcoin due to regulatory concerns, according to Michael Saylor.
Research analysts included in the report that portfolios of altcoins have demonstrated the possibility of extra profits when compared to Bitcoin; however, this necessitates “timing the market or selecting the successful altcoins.” Anders Helseth, Vice President of Research at K33 Research, informed Cointelegraph regarding Dollar Cost Averaging that,
An effective investment strategy for crypto investors who have observed that Bitcoin has outperformed altcoins over the long run could be to employ dollar cost averaging (DCA) into Bitcoin.
DCA stands for “Dollar Cost Averaging”, which entails investing a fixed amount of money into a particular asset over a certain period of time, without taking into consideration the investment’s price. This strategy helps to average out the principal amount and eliminates the requirement to time the markets. K33 Research’s Helseth commented on the Bitcoin DCA strategy, stating that “it is a sensible, safe, and straightforward crypto investment approach.”
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