Author: Hyphin, On Chain Times; Translated by: Wuzhu, Golden Finance

Despite continued favorable price action from major cryptocurrencies and the U.S. stock market, sentiment towards altcoins appears to be at unusually low levels. Expectations instilled by previous cycles have left many feeling disappointed and incredulous while their portfolio returns have stagnated in an uptrend.

status quo

Sentiment in this space tends to be fickle, as people often exaggerate, especially when they are overexposed. Biases can change on a whim, making sentiment on social media an unreliable indicator for forming an accurate market outlook. However, what we can do is plot some relevant data on a chart and analyze it to determine just how dire the situation really is.

Indices and aggregate charts that track various global indicators give us a broad view of the entire market, helping to determine where most of the value is and how it is moving.

The total cryptocurrency market capitalization has grown significantly over the past year and a half with surprisingly little volatility. Although Bitcoin has hit all-time highs, it has yet to break through the levels seen during the 2021 mania, largely due to altcoins’ inability to keep up with Bitcoin’s growth. Capital flows into more speculative assets were lower than expected, catching many off guard.

This phenomenon can be better illustrated by directly charting Bitcoin against the altcoin market (excluding Ethereum), embracing its continued appreciation.

Needless to say, this time around, Bitcoin has stolen the show, coming out on top by consistently gaining more and more market share during its ascent. Basically leaving altcoins in the dust. The once lucrative game of catch-up between Bitcoin and the rest of the market has now become a pipe dream. Any attempt to kick-start a proper market alt season has been hampered by a lack of liquidity.

Even though Ethereum has been mocked for its lackluster price action, it has still managed to stay ahead of the curve. Speculators who have positioned themselves in on-chain ecosystem tokens, aside from memecoin or anything denominated in stablecoins, have been having a great time in purgatory. Our sincerest tribute goes out to those who have fallen in love with the ETH beta baby.

Indicators widely used to find favorable conditions to enter or exit alternative markets have been sending worrying signals, suggesting that the prevailing view on market dynamics may not apply to current circumstances.

The correlation between the main asset and other assets has proven to be very useful in determining the current state of the market. By incorporating an oscillator that tracks the difference between the two (blue line), participation levels can be configured and subsequently used for convergence. Low oscillator values ​​coupled with rising Bitcoin prices are often seen as a reason to buy, as it is assumed that altcoins are undervalued and will eventually become undervalued. Recent data shows that bullish periods for altcoins are gradually becoming shorter and weaker, incentivizing short-term investments rather than uncertain longer timeframe investments.

Although many seemingly promising tokens have high upside potential, they still struggle to deliver exceptional returns.

This is reflected in the lackluster performance of the top 250 assets compared to the two largest assets, which have been somewhat overlooked by many players in the space due to their astronomical valuations. Further weighing down sentiment.

Finding a needle in a haystack

It’s clear that things have changed over time, and identifying trends and narratives has become more important than ever in order to outperform the index. The days of all cryptocurrencies rising at the same time appear to be over. Fragmented liquidity and declining trading volumes have concentrated most of the significant gains into a few industries. While general indicators suggest that altcoins are struggling as a collective with marginal appreciation, they do mask the differential growth of individual asset groups.

Cryptocurrency category growth

The market capitalization growth of individual asset classes relative to various other currencies since the market bottom.

A strict look at the market capitalization changes in the various baskets since the start of the rebound shows that most mature categories have fallen below the benchmark. On the other hand, emerging regions with a lot of opportunities, appeal, and new developments have performed very well. It is important to note that outliers can exist in any sector, and growth within a curated group is only a vague representation of the performance of the covered assets.

To review everything that has happened so far and determine who was right and who was wrong, let’s highlight a few relevant categories and measure the price returns of their most valuable assets.

Price return calculation method:

To take into account recent launches that have risen to the top of their category, starting prices are either queried from November 21, 2022, or from the first entry on CoinGecko. Current prices are queried at the time of writing (June 18, 2024).

Price_return_% = ((Current Price - Starting Price) / Starting Price) * 100

Memecoins

Memecoins were the undisputed theme of this round. Last year, they spawned more get-rich-quick tales than the lottery, while also taking away enough wealth to fight the taxman.

The percentage change in total valuation for memecoins has not been as large as one might expect, as coins like Dogecoin and Shiba Inu, which account for nearly half of the market, have barely moved up. Aside from a few very successful tokens on Ethereum, the majority of meme activity has occurred on Solana and, more recently, Base. The highest returns and new top 10 entrants (3) came from Solana, with two percentage increases exceeding five figures.

DeFi

Revenues. Fundamentals. The future of finance. Protocol usage, transaction volume, and total value locked metrics are all rising as more people get involved in blockchain. Does all this mean new expansion? Well, not exactly.

Innovation and product-market fit aside, price returns for DeFi (excluding 1.0) tokens have been simply horrible, as all projects except Pendle and The Graph have tanked. The liquidity staking market has seen massive growth and adoption over the past few years, but governance tokens representing liquidity wrappers have not. Tokens associated with decentralized exchanges have suffered the worst price volatility of all tokens, with only Jupiter remaining in the green.

While the above chart sets a worrying precedent for the space, perhaps the granddaddy of the industry, DeFi 1.0, has managed to exceed expectations.

Regardless of their high valuations, high yields, and high utilization, traditional protocols have proven to be a poor investment cycle unless a yield strategy is in place to offset depreciation. A recurring theme for DeFi protocols is the lack of use cases for their tokens beyond liquidity mining due to lackluster performance. Fee switching can be a saving grace as it creates significant buying pressure on tokens by providing users with actual yields rather than diluting their holdings.

L1s

Layer 1 blockchains are by far the most popular and heavily traded category among speculators, representing the sector and historically showing solid price action, led by Bitcoin and Ethereum. Advances in the space have spawned millions of alternatives vying for market dominance. Their success is closely tied to the ability to foster a thriving ecosystem that attracts skilled builders and attracts a large user base that constantly interacts with the applications. In some cases, technical specifications alone are enough to establish a presence.

Many of the entries on the list have managed to generate multiples, with only three of them outperforming the category leaders. Solana has been hailed as the Layer 1 play of the cycle, not least because of its returns, having risen from the bottom to quickly become one of the most used chains on the market and the de facto memecoin hub. Kaspa has outperformed Solana despite its lack of mainstream attention and relatively low trading volumes, which has kept it under the radar.

L2s

Aiming to solve the problems of scalability and expensive transaction fees, roll-ups have cemented themselves as an integral part of the on-chain ecosystem.

Unlike the base layers they leverage, L2 has seen mediocre returns, while low-volume, high-valuation venture capital chains like Starknet and Arbitrum have sunk into deep losses. Any significant growth in value is demonstrated by those associated with new concepts related to zero knowledge and the Bitcoin infrastructure.

in conclusion

After facing the harsh realities of the market and receiving liquidation emails, one cannot be blamed for thinking that altcoins are a thing of the past. It is clear that it has become increasingly difficult to win on Bitcoin and Ethereum at this juncture without following a trend. It is impossible to take advantage of every trend unless you are ultimately online or influential. The negative sentiment these prices bring suggests the need to rebalance your portfolio and consider risk. The future of the altcoin market is uncertain, but it is hard to imagine it getting any worse.