Author: Stacy Muur
Compiled by: Deep Tide TechFlow
We have finally welcomed a bull market, but it has also exposed some weaknesses in the realities of the Web3 economy.
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 performed poorly, while established coins like XRP, $ADA, $DOT, and $ATOM have achieved remarkable returns.
Background: Comparison of Established Coins and New Coins
Historically, newer altcoins (tokens less than two years old since TGE, or Token Generation Event) tend to outperform older coins over different time periods. However, this bull market presents a starkly different trend: established projects (like $XLM, $XRP, $ADA, $DOT, and $ATOM) have become dominant forces in the market, while new coins have performed poorly.
Next, we will explore the underlying reasons for this phenomenon, its potential significance, and implications for the future.
Analyzing Trend Changes: Key Insights
New capital inflow, not fund rotation
The comprehensive rise of established altcoins indicates that this trend is not driven by the rotation of funds within the crypto market. More likely, the market is attracting new capital, especially from retail investors re-entering the market.
Retail investors are returning, but their focus is different.
With the rise in the ranking of the Coinbase app and the increase in views of crypto-related YouTube content, signs of retail investors' return are very evident. However, contrary to expectations that retail investors would pour funds into high-risk Memecoins, it seems that these funds are flowing more towards projects that were already established in the last bull market. This may indicate that the current retail investor demographic is older, more risk-averse, or more familiar with well-known altcoins from the last bull market.
Familiarity and Trust as Deciding Factors
The established altcoins that have performed prominently in this bull market are mostly star projects from the previous bull market. This suggests that returning retail investors are likely between the ages of 25 and 45 and have some experience in the cryptocurrency market. They may lack understanding of newer narratives like DePIN (Decentralized Physical Infrastructure Networks), RWA (Real World Assets), and AI, and thus tend to choose more familiar projects.
The Impact of Intergenerational Differences
Meanwhile, Generation Z investors (who typically 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 capital inflow.
Impact of Inflation
Another important factor contributing to the poor performance of new altcoins is inflation. Relatively speaking, established coins have a higher proportion of circulating supply, meaning new capital is not diluted by the continuous issuance of tokens.
If you are interested in these trends, 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 impact 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 a stark 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 with some real examples:
In 2021, $SOL reached a price of $258, with a market capitalization of $75 billion. Today, its price remains $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 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, the market cap is close to its 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, now it has decreased to $3.8 billion. The price in March was $2.1, and now it is 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 'altcoin season' seems to have arrived, inflation is still quietly eroding the potential returns of many assets. As circulating supply increases, maintaining or growing token prices requires more capital investment. For assets with high inflation rates, investors must face a tough struggle, even in a bull market.
How to Address Inflation Challenges
To better protect their returns in the bull market, investors can adopt the following strategies:
Study Tokenomics: Before investing, carefully analyze the project's inflation rate and token distribution plan. Focus on projects with slower supply growth or lower inflation rates.
Invest Wisely: Prioritize projects with a limited total supply or clearly defined inflation caps, such as Bitcoin (BTC).
Evaluate Real Returns: When calculating investment returns, consider inflation factors and adjust expectations for returns.
Inflation is not just a macroeconomic term; it is actually the 'silent killer of returns' in the crypto market. Understanding and effectively responding to the impact of inflation will be 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 studied 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 come from a completely different background and mindset than us.
To truly understand the behavior of these retail investors, one might recall the time when you first encountered cryptocurrency. At that time, you might have had only one centralized exchange (CEX) account filled with token codes that you were completely unfamiliar with.
I believe that retail investors new to the market can be roughly divided into the following three categories:
Generation Z (Gen Z): This generation may purchase Memecoins due to the popularity of TikTok (typically entertaining and highly volatile tokens).
Generation X (Gen X): This generation may already have some experience with crypto investments from previous bull markets.
Generation Y (Gen Y): In recent years, they have been attracted to the market due to the opening of stock trading to retail investors, and they may develop an interest in the crypto market.
Recently, I conducted an in-depth study of Generation Z's investment mindset. Compared to other generations, they exhibit significant differences in risk attitudes and behavioral patterns. The following description 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, then 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 biggest investment for them is time, not money, making these activities more appealing.
However, trading is a completely different realm. When Generation Z encounters the bull market through TikTok, they may initially see it as an exciting adventure. But as losses from market volatility set in, they are likely to quickly feel the harsh reality.
In contrast, the situation for Generation Y is 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 is more likely 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 makes them more rational and prudent in choosing investment targets.
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.
