New capital inflows, rather than fund rotations; 2. Retail investors return, but with different focuses.
Author: Stacy Muur
Translation: Deep Tide TechFlow
We have finally welcomed the bull market, but it has also exposed some weaknesses in the economic reality of Web3.
For market participants who have been continuously optimizing their portfolios over the past few years, this bull market seems somewhat 'stingy.' Many newer tokens have underperformed, while established coins like XRP, $ADA, $DOT, and $ATOM have achieved remarkable returns.
Background: Comparison of the performance of old and new coins
Historically, newer altcoins (tokens less than two years old from their Token Generation Event (TGE)) have often outperformed established coins over different time periods. However, this bull market has presented a completely different trend: established projects (like $XLM, $XRP, $ADA, $DOT, and $ATOM) have become the dominant forces in the market, while new coins have performed poorly.
Next, we will explore the reasons behind this phenomenon, its potential implications, and what it means for the future.
Analyzing trend changes: Key insights
New capital inflows, not fund rotations
The comprehensive rise of established altcoins indicates that this trend is not driven by the rotation of funds within the crypto market. It is more likely that the market is attracting new capital, especially from retail investors re-entering the market.
Retail investors return, but with different focuses
With the rise in rankings of the Coinbase app and the increase in views of crypto-related YouTube content, signs of retail investors' return are quite evident. However, contrary to expectations that retail investors would pour funds into high-risk Memecoins, these funds seem to flow more toward projects that have already matured in the previous bull market. This may indicate 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 outstanding performance of established altcoins in this bull market mostly comes from star projects of the previous bull market. This suggests that returning retail investors are likely aged between 25 and 45 and have some experience in the cryptocurrency market. They may lack understanding of newer narratives such as DePIN (Decentralized Physical Infrastructure Network), RWA (Real World Assets), and AI, and thus tend to choose familiar projects.
The impact of generational differences
At the same time, Generation Z investors (who usually encounter 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 inflows.
Impact of inflation
Another important factor leading to the underperformance of new altcoins is inflation. Relatively speaking, established coins have a higher proportion of circulating supply, so new capital is not diluted by the continuous issuance of tokens.
If you are interested in these trends, the future market dynamics will be worth continuous 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 affect market performance during the 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 an undeniable 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 value is crucial.
Let's illustrate this with some practical 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 is the reason behind this change? The answer is: an increase in circulating supply. As the supply expands, the value of a single token is diluted by inflation, 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 new highs.
$ENA: Its current market cap is close to the historical high ($2.12 billion vs. the 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, currently down to $3.8 billion. The price was $2.1 in March and is now 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 is $0.53.
These are just the tip of the iceberg. In fact, many tokens face similar dilemmas.
Even though the 'altcoin season' seems to have arrived, inflation is still quietly undermining the potential returns of many assets. As circulating supply increases, maintaining or increasing token prices requires more capital input. For assets with high inflation rates, investors must face a difficult struggle even in a bull market.
How to combat inflation challenges
To better protect their returns during the bull market, investors can adopt the following strategies:
Study Tokenomics: Before investing, carefully analyze the project's inflation rate and token distribution plan. Pay attention to projects with slower supply growth or lower inflation rates.
Diversify wisely: Prioritize projects with limited total supply or clearly set inflation caps, such as Bitcoin (BTC).
Assess real returns: When calculating investment returns, consider inflation factors and adjust expectations for gains.
Inflation is not just a macroeconomic term; it is, in fact, the 'silent killer of returns' in the crypto market. Understanding and effectively addressing the impact of inflation will be one of the keys for investors to succeed 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 prices nearing $100,000 have completely different backgrounds and mindsets from us.
To truly understand the behavior of these retail investors, you might recall the time you first encountered cryptocurrencies. Back then, you probably only had an account on a centralized exchange (CEX) filled with token codes that were completely unfamiliar to you.
I believe that retail investors newly 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-oriented and volatile tokens).
Generation X (Gen X): This generation may have some experience in cryptocurrency investment from previous bull markets.
Generation Y (Gen Y): In recent years, they have been attracted to the market due to the accessibility of stock trading for retail investors, and they may develop an interest in the crypto market.
Recently, I conducted in-depth research on the investment mindset of Generation Z. Compared to other generations, they exhibit significant differences in risk attitudes and behavioral patterns. The following descriptions may be more applicable to the average Generation Z investor. If you are a Generation Z reader and find this content does not resonate with you, you may be one of the few exceptions.
For Generation Z, taking risks and incurring losses is often undesirable. They tend to engage in lower-risk activities, such as earning rewards through completing Galxe tasks, playing Hamster Kombat, or participating in airdrop mining. The greatest investment in these activities is time, rather than money, making them more appealing.
However, trading is a completely different realm. When Generation Z encounters the bull market through TikTok, they may initially view it as an exciting adventure. But as losses from market fluctuations hit, they are likely to quickly feel the harsh reality.
In contrast, the situation for Generation Y is different. If they become interested in cryptocurrencies, it is likely because they have 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 is more likely to open CoinMarketCap, check the token list, analyze market charts, and make decisions based on data. Moreover, they typically have more disposable income than Generation Z, making their investment choices more rational and prudent.
Conclusion
The above are some of my views on the behavior of retail investors in the current market, which are generally consistent with recent market performance. Of course, this does not mean my analysis is 100% correct, nor does it represent the only explanation.
