Perhaps, buying Bitcoin may ultimately be the best choice.
Despite the continued upward trends in mainstream cryptocurrencies and US stocks, confidence in altcoins seems unusually low. Expectations from previous cycles have left many investors disappointed with the performance of altcoins in this bull market, as portfolio returns have stagnated.
Current Situation
Sentiment in the cryptocurrency industry is notoriously volatile. Initially, investors tend to exaggerate various market news, especially when heavily invested in a particular token. Moreover, biases towards certain tokens among investors can change rapidly. Therefore, sentiment on social media cannot reliably gauge market prospects. Our approach involves plotting relevant data on charts and conducting hypothetical analyses to assess the severity of the current situation.
By tracking indices and comprehensive charts of various global indicators, we gain a broad understanding of the entire market, aiding in identifying where most of the industry’s value lies and its fluctuations.
Global cryptocurrency market value data from 14,759 cryptocurrencies across 1,129 exchanges; Source: CoinGecko
Over the past eighteen months, the total market capitalization of cryptocurrencies has grown significantly, albeit with surprisingly low volatility. While Bitcoin has set historic highs, the overall market still lags behind the fervor of 2021, primarily due to altcoins failing to keep pace with Bitcoin’s growth. The influx of speculative capital into these assets has been lower than anticipated, catching many off guard.
To illustrate this phenomenon better, we compare the market performance charts of Bitcoin and altcoins (excluding Ethereum) to highlight Bitcoin’s sustained appreciation.
Comparison of 7-day rolling averages between total altcoin market cap and Bitcoin market cap
Undoubtedly, Bitcoin has overshadowed altcoins in this bull market, gaining a larger market share as its price continues to rise. While altcoins attempted to catch up with Bitcoin in previous cycles, such aspirations seem futile now. The cascading decline in liquidity has hindered any prospects for another altcoin season across the entire market.
Comparison of 7-day rolling averages between total altcoin market cap and Ethereum market cap
Despite Ethereum’s ridiculed flat price movement, it maintains a leading position. Speculators seeking opportunities within on-chain ecosystems rather than memecoins or tokens pegged to stablecoins have found relative ease in this tumultuous market. Our deepest condolences go to investors ensnared in Ethereum Beta scams.
Furthermore, indicators for altcoin investment, widely used to identify favorable conditions for entering or exiting the altcoin market, have been signaling worrisome trends, suggesting that general market perceptions may not be applicable to the current situation.
Altcoin investment indicators: Summary chart akin to TOTAL/TOTAL3 oscillation indicators for long-term altcoin investment
It has been proven that correlations between mainstream assets and other altcoins help determine the current state of the market. Lower oscillation indicator values (blue line) combined with Bitcoin’s continuous rise are often seen as buying opportunities for altcoins, which are perceived to be undervalued and expected to follow suit in appreciation. However, recent data indicates that bullish cycles for altcoins have become brief and feeble, prompting investors to make short-term rather than uncertain long-term investments.
As shown in the following chart, despite many tokens being touted for their high upside potential, they have ultimately failed to deliver significant returns.
Comparison of price returns between top 250 altcoins and Bitcoin and Ethereum
Performance of the top 250 altcoins has been disappointing compared to Bitcoin and Ethereum, further dampening market sentiment.
Finding Opportunities in the Sluggish Altcoin Market
It is evident that market dynamics have shifted over time, emphasizing the importance of identifying trends and narratives more than ever to surpass indices. The era of irrational rallies has long passed. Liquidity dispersion and declining trading volumes have concentrated most gains in a few sectors. While general indicators suggest minimal appreciation for altcoins as a collective, this performance masks differentiated growth within specific asset groups in the altcoin market.
Relative market value growth of individual asset categories since market bottom
Observing changes in market values of various basket tokens since the rebound began reveals that most mature token categories have fallen short of benchmarks. Conversely, emerging areas with abundant opportunities, appeal, and new developments have shown impressive results. It is important to note that any industry may experience outliers, and growth in specific groups only vaguely represents the performance of the assets they encompass.
To recap everything that has transpired so far and identify corresponding opportunities, we focus on analyzing specific categories and measuring the price returns of their most valuable assets.
Calculation method for price returns: (Current Price – Initial Price) / Initial Price * 100. To account for recently launched products ranking high in their track, initial prices are queried from November 21, 2022, or the first entry on CoinGecko. Current prices are those queried as of June 18, 2024.
Memecoin
Memecoins have undoubtedly been a theme of this cycle. Over the past year, investors have seen more fortunes made and lost in memecoins than in lottery winnings, with Dogecoin and Shiba Inu alone accounting for nearly half of the memecoin market share, albeit with marginal gains. Aside from a few successful tokens on Ethereum, most memecoin activity has shifted to Solana and the recently launched Base. Three of the highest-returning and newest top ten memecoins come from Solana, with two tokens even exceeding five-figure returns.
DeFi
DeFi conjures thoughts of income, fundamentals, and the financial future. Despite increasing participation in on-chain trading, metrics such as protocol usage, trading volumes, and total locked value have risen, but can they herald a new DeFi Summer? Not quite.
Price performance of top 10 DeFi tokens (excluding tokens from DeFi 1.0 era)
Setting aside innovation and product-market fit, the price returns of current DeFi tokens (excluding those from the 1.0 era) have been abysmal, barring Pendle and The Graph. Liquidity staking has seen significant growth and adoption in recent years, but governance tokens representing liquidity encapsulation have failed to capitalize. Additionally, tokens associated with decentralized exchanges have performed poorly, with Jupiter being the sole exception.
While the data above is concerning, pioneers of the industry, namely DeFi tokens from the 1.0 era, have delivered even more surprising results.
Price performance of top 10 DeFi 1.0 tokens
Protocols from the DeFi 1.0 era have boasted high valuations, earnings, and usage rates, yet their performance this cycle has been less than ideal unless income strategies offset token depreciation. A recurring issue hindering the performance of DeFi protocol tokens, beyond liquidity mining, is the lack of practical utility. Fee conversion may prove a lifeline, providing tangible benefits to users rather than diluting their holdings through token releases, thus creating significant buying pressure.
L1
L1 tokens have consistently been the most traded and popular category among speculators, serving as the face of the cryptocurrency industry. Led by Bitcoin and Ethereum, L1 tokens have historically exhibited stable price trends. Advances in this field have birthed numerous alternative solutions vying for market dominance, their success tied closely to their ability to foster ecosystem prosperity, attract technically adept builders, and capture a large user base engaged in ongoing applications. In some cases, L1 tokens have secured market footing based solely on technical specifications.
Price performance of top 10 L1 tokens
Many projects in the table above have doubled their price returns compared to USD, with only three projects surpassing leaders in the L1 race, namely Bitcoin and Ethereum. Solana, acclaimed as the “headliner” in this cycle’s L1 category not only due to its returns but also for swiftly becoming one of the market’s most utilized chains and a veritable center for memecoins. Solana has usurped BSC’s position as Binance Smart Chain failed to replicate its previous shitcoin hype. Despite Kaspa lacking mainstream attention and maintaining relatively low trading volumes, its returns have exceeded those of Solana.
L2
Rollup has become an indispensable part of the on-chain ecosystem to address scalability and high transaction costs.
Price performance of top 10 L2 tokens
In contrast to their underlying layers, L2 returns have been lackluster, with VC chains like Starknet and Arbitrum, characterized by low circulation and high valuation, mired in losses. New concepts related to zero-knowledge proofs and Bitcoin infrastructure have garnered substantial value growth.
Conclusion
Faced with harsh market realities and various liquidation notices, one might think that investment opportunities in altcoins have passed.
Clearly, at this juncture, surpassing Bitcoin and Ethereum in investment returns will only become increasingly difficult if one fails to keep up with the narrative tide.
Yet, unless you closely monitor market trends or wield considerable influence, catching every trend is impossible. In today’s market climate, saturated with negativity, investors must rebalance portfolios and consider risks.
The future of the altcoin market remains uncertain but unlikely to worsen.
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