Author: Stacy Muur
Translation: Shenchao TechFlow
We have finally welcomed the bull market, but this has also exposed some weaknesses in the economic realities of Web3.
For market participants who have been continuously optimizing their portfolios over the past few years, this bull market seems a bit 'stingy.' Many newer tokens have performed poorly, while established coins like XRP, $ADA, $DOT, and $ATOM have achieved impressive returns.
Background: Comparison of Established and New Coins
Historically, newer altcoins (tokens that have been around for less than two years since the Token Generation Event, TGE) usually outperform established coins over different periods. However, this bull market presents a starkly different trend: established projects (such as $XLM, $XRP, $ADA, $DOT, and $ATOM) have become the dominant forces in the market, while new coins have performed flat.
Next, we will explore the underlying reasons for this phenomenon, its potential implications, and insights for the future.
Analyzing Trend Changes: Key Insights
New Capital Inflows, Not Fund Rotation
The overall rise of established altcoins indicates that this trend is not driven by fund rotation within the crypto market. More likely, the market is attracting new capital, especially from retail investors re-entering the market.
Retail Investors are Back, but Their Focus is Different
As the ranking of the Coinbase app rises and the viewership of crypto-related YouTube content increases, signs of retail investor return are very clear. However, contrary to expectations that retail investors would funnel money into high-risk Memecoins, these funds seem to be flowing more into projects that had matured during the last bull market. This may suggest that the current group of retail investors is older, more risk-averse, or more familiar with well-known altcoins from the previous bull market.
Familiarity and Trust as Determining Factors
The established altcoins that have performed well in this bull market are mostly the star projects from the previous bull market. This indicates that returning retail investors may be aged between 25 to 45 and already have some experience in the cryptocurrency market. They may lack understanding of newer narratives such as DePIN (Decentralized Physical Infrastructure Networks), RWA (Real World Assets), and AI, thus tending to choose more familiar projects.
The Impact of Generational Differences
Meanwhile, Generation Z investors (typically exposed to cryptocurrencies through TikTok or meme-driven content) have less disposable income. This may explain why, despite the return of retail investors, the Memecoin market has failed to attract significant capital inflows.
Impact of Inflation
Another important factor leading to the poor performance of new altcoins is inflation. Relatively speaking, established coins have a higher circulating supply ratio, so new capital will not be diluted by the continuous issuance of tokens.
If you are interested in these trends, future market dynamics will be worth continued attention. Will the rise of established coins change the economic landscape of Web3? How will new coins respond to these challenges? Let's wait and see.
In the following content, we will focus on two key factors that significantly influence market performance during a bull market: inflation and the demographic structure of retail investors.
Inflation: The Invisible Killer of Crypto Returns
The current bull market has filled the crypto market with optimism, but it has also exposed a significant reality: inflation is quietly eroding investors' returns. For any investor hoping to gain returns in this bull market, understanding the impact of inflation on asset values is crucial.
We illustrate this with some real examples:
In 2021, $SOL reached a price of $258, with a market cap of $75 billion. Now, its price remains at $258, but its market cap has grown to $122 billion. What caused this change? The answer is: the increase in circulating supply. As supply expands, the value of a single token is diluted by inflation, thus requiring a higher market cap to maintain the same price level.
Here are more similar cases:
$TAO: Although its market cap has surpassed the historical high (ATH) of $4.6 billion, the price has failed to reach a new high.
$ENA: Currently close to its historical high market cap ($2.12 billion vs. current $1.84 billion), but the price has dropped from $1.49 to $0.64.
$ARB: The ATH market cap in March was $4.6 billion, now down to $3.8 billion. The price in March was $2.1, and now it's only $0.8.
$SEI: The ATH market cap was $2.8 billion, while recently it was $2.25 billion; the ATH price was $1.03, and now it’s $0.53.
These are just the tip of the iceberg. In fact, many tokens face similar dilemmas.
Even if the 'altcoin season' seems to have arrived, inflation is still quietly undermining the potential returns of many assets. As the circulating supply increases, maintaining or increasing token prices requires more capital inflow. For assets with higher inflation rates, investors must face a difficult struggle even in a bull market.
How to Respond to Inflation Challenges
To better protect their returns during a bull market, investors can adopt the following strategies:
Research Tokenomics: Before investing, carefully analyze the project's inflation rate and token distribution plan. Focus on projects with slow supply growth or low inflation rates.
Invest Wisely: Prioritize projects with a limited total supply or clearly defined inflation caps, such as Bitcoin (BTC).
Assess Real Returns: When calculating investment returns, consider the impact of inflation and adjust your return expectations.
Inflation is not just a macroeconomic term; it is, in fact, the 'silent killer of returns' in the crypto market. Understanding and effectively responding to the impact of inflation will become one of the keys for investors to win in a bull market.
TikTok vs. CoinMarketCap
If you are reading this article, you are likely a seasoned investor who has experienced both bull and bear markets. You may have researched various new protocols, participated in airdrop mining, and explored many emerging investment narratives. In contrast, ordinary retail investors who have just entered the market due to favorable election news or Bitcoin price nearing $100,000 have a completely different background and mindset from us.
To truly understand the behavior of these retail investors, it may be helpful to recall the time when you first encountered cryptocurrencies. Back then, you might have had only one centralized exchange (CEX) account filled with token codes that were completely unfamiliar to you.
I believe that the new retail investors entering the market can be roughly divided into the following three categories:
Generation Z (Gen Z): This generation may buy Memecoins due to the popularity of TikTok (usually entertainment-driven and highly volatile tokens).
Generation X (Gen X): This generation may have some experience in crypto investing from previous bull markets.
Generation Y (Gen Y): Recently attracted to the market due to stock trading opening up for retail investors, they may have developed an interest in the crypto market.
Recently, I conducted an in-depth study of Generation Z's investment mindset. Compared to other generations, they have significant differences in risk attitudes and behavior patterns. The following descriptions may be more applicable to the average Generation Z investor. If you are a Generation Z reader and feel that this content does not resonate with you, you may be one of the few exceptions.
For Generation Z, taking risks and suffering losses is usually undesirable. They tend to participate in lower-risk activities, such as earning returns through completing Galxe tasks, playing Hamster Kombat games, or participating in airdrop mining. The greatest investment in these activities is time, not money, making them more appealing.
However, trading is a completely different domain. When Generation Z encounters the bull market through TikTok, they may initially feel it is an exciting adventure. But as the market's volatility brings losses, they are likely to quickly feel the harsh reality.
In contrast, the situation for Generation Y is somewhat different. If they develop an interest in cryptocurrencies, it is likely because they have already accumulated some trading experience in the stock market and have a clearer understanding of investment risks. Therefore, they are less likely to be attracted to high-risk Memecoins.
Generation Y tends to open CoinMarketCap, check token lists, analyze market charts, and make decisions based on data. Additionally, they typically have more disposable income than Generation Z, which allows them to be more rational and prudent when selecting investment targets.
Conclusion
These are some of my observations regarding the behavior of retail investors in the current market, which generally align with recent market performance. Of course, this does not mean my analysis is 100% correct, nor does it represent the only explanation.
