The altcoins they offer diverse and innovative features, promising technological advances, and potentially lucrative investment opportunities.
Many times, certain altcoins record large gains that outpace Bitcoin (BTC), which is popularly known as the altcoin season. However, K33 Research’s analysis shows that, in the long run, “just Bitcoin” has been a better investment strategy than an altcoin portfolio.
Altcoin portfolios have underperformed Bitcoin over the long term
Bitcoin has had three consecutive bull and bear market cycles, starting in 2013 and the last one in 2021. In each cycle, the price of Bitcoin rose parabolically in a very short span, usually a few months, after surpassing the peak of your previous cycle.
In 2013, BTC peaked at around $1,750 and then followed a downward trend for two years. At that time, the altcoin market was in its nascent phase. On-ramps from fiat to Bitcoin were limited and exchanges to convert them to altcoins were scarce.
However, by the end of 2015, several altcoins had been produced, including the ethereum invention. Some exchanges supporting the conversion of Bitcoin to other cryptocurrencies had also been propped up, paving the way for an altcoin market.
It was not until April 2017, when the price of Bitcoin surpassed the high of 2013, when a bull run in altcoins took place. During the second half of 2017, the ICO boom on Ethereum and retail investment hype around Ripple’s XRP led altcoin season, as many tokens outperformed Bitcoin until January 2018.
However, after the bull market, altcoins suffered relatively larger losses than Bitcoin. This suggests that altcoins skyrocketed primarily because users bought them during Bitcoin bull markets hoping for higher returns.
The chart of Bitcoin and altcoin market caps shows that during the 2018-2019 bear market, Bitcoin found support around $6,500 after recovering from lows of $3,250 in late 2018.. However, altcoins continued to hover around the lows for most of the duration of the bear market and only reversed their trend after Bitcoin broke above its previous high of $20,000.
K33 Research calculated the return on investing $1 each in 1,009 altcoins since 2015, when they entered the top 100 by market cap on CoinMarketCap, versus the same amount simultaneously invested in Bitcoin.
The altcoin portfolio would be worth around $7,000 today, compared to $50,000 for the Bitcoin-only strategy.
Altcoins are often narrative driven and many of them die with market developments. For example, privacy-based tokens were very popular in 2017, but due to the regulatory scrutiny they are no longer in the top 100 by market capitalization.
Similarly, many DeFi tokens like Compound (COMP) and Thorchain (RUNE) that populated the market in 2020 have dropped off the list of top cryptocurrencies due to the decline in DeFi usage and along with it the demand to hold non-yielding governance tokens.
Altcoins are also subject to volatility and unpredictable changes with regulatory uncertainty hanging over most tokens.. Different altcoins can experience their individual seasons at different times, and the length of an altcoin season can vary significantly, requiring perfect timing on the part of the investor to turn a profit.
K33 analysts found that, since 2015, more than two-thirds of the 1,009 altcoin projects that managed to break into the top 100 by market capitalization have gone dormant. Only 9.11% of these altcoins returned positive returns, and only about 1.5% exceeded Bitcoin’s 50X returns.
The report adds that altcoin investments have only been profitable twice since 2015: in 2017, when the altcoin strategy gained a significant advantage due to Ether’s outperformance (ETH) and XRP (XRP), and in 2021, when the altcoin portfolio briefly approached the value of Bitcoin during the Dogecoin hype (DOGE) and Shiba Inu (shib).
In particular, during the second half of 2021, As Bitcoin recaptured the March 2021 $60,000 level to hit new all-time highs at $69,000, altcoins except ETH posted relatively tepid gains.
Positive break in Bitcoin dominance
In addition to a breakout of Bitcoin’s all-time high, another powerful indicator that helps identify long-term trend changes in altcoins is breakouts of Bitcoin’s dominance levels from crucial levels.
Altcoin seasons in the previous two cycles were marked by Bitcoin dominance breaking below 60%. Following the bullish trend reversal, the low in Bitcoin dominance also coincided with the high in total altcoin market capitalization.
If history repeats itself, Bitcoin’s dominance could further increase while altcoin performance remains subdued.
A break in Bitcoin dominance above the 50% level on June 19, 2023, thanks to the filling of BlackRock’s Bitcoin ETF, has opened up space for more losses from altcoinsas it marked a crucial historical resistance point.
In the last half of the previous bear market that spanned from 2018 to 2020, Bitcoin’s dominance increased to over 70%. On the other hand, Bitcoin’s performance was relatively better, as its price held above 2018 lows of around $3,250. K33 Research also shows that this period marked significantly poor altcoin returns, making new lows towards the end.
K33 Research analysts added in the report that altcoin portfolios have shown the potential for additional gains in Bitcoin, however, that requires “timing the market or picking altcoin winners” Anders Helseth, vice president of research at K33 Researchtold Cointelegraph regarding DCA that,
“You can generate higher returns by trading market sentiment more aggressively, but it requires a lot of attention and is obviously riskier.”
Since Bitcoin has outperformed altcoins in the long run, an effective investment strategy for cryptocurrency investors may be to dollar cost averaging (DCA) in Bitcoin.
DCA means regularly investing a fixed amount of money in a particular asset over a specified period, regardless of the price of the investment, to average out the principal amount and eliminate the need to time the markets. Helseth of K33 Research commented on the Bitcoin DCA strategy that it “is a sensible, fairly safe and straightforward cryptocurrency investment strategy.”
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.