According to CoinDesk, many digital asset investors use bitcoin as a benchmark, at least psychologically. Over the past few years, bitcoin has proven to be a formidable benchmark, leading some market participants to reconsider their investments in alternative cryptocurrencies. However, the question remains whether bitcoin has always been this challenging to surpass.
Data from 2019 onwards was analyzed for the top 150 tokens by market capitalization, excluding memecoins and those with insufficient trading volume on major centralized exchanges. This selection aimed to represent the universe of tokens that a manager of a liquid token strategy might realistically evaluate. Notably, until late 2020, fewer than 150 tokens met these criteria due to liquidity constraints.
The analysis focused on how many tokens within the top 150 outperformed bitcoin over a one-year period. In 2019 and 2020, surpassing bitcoin seemed relatively easy, with many tokens achieving returns significantly higher than bitcoin's own impressive performance. The average market cap rank of these outperformers was around 30 before 2020.
However, the scenario changed post-2021. Only 10-20% of the top 150 tokens have outperformed bitcoin in any given 365-day period over the past few years. The average outperformance compared to bitcoin has also moderated to around 100%. Additionally, the average market cap rank of tokens beating bitcoin has increased, fluctuating between the 60-80 rank mark.
This data suggests that identifying winning tokens requires considerable skill, perhaps more so now than five years ago. The cryptocurrency market has evolved, with tangible results now expected alongside the vision of growing crypto projects. Despite this, the figures indicate that selecting a few high-conviction tokens may leave investors with low odds of outperforming bitcoin.
Smaller projects continue to hold significant potential, and even though the crypto market has matured, performance for top names remains substantial, often exceeding 100% over bitcoin. These findings imply that returns in crypto markets today largely follow a power law distribution, with a few outperformers driving overall positive portfolio results. Diversification appears underappreciated by investors in the liquid token space. As a collection of start-up stage companies, investors could benefit from adopting venture capital-style diversification approaches while leveraging the liquid secondary market. Although altcoins have a promising future, investing in them will not be straightforward.
