Original title: The New Altcoin Drama: Inflation, Awareness, and TikTok
Original author: Stacy Muur
Original translation: Shenchao TechFlow
We have finally welcomed the bull market, but this also exposes 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 feels somewhat 'stingy.' Many newer tokens have performed poorly, while established coins like XRP, $ADA, $DOT, and $ATOM have achieved remarkable returns.
Background: Comparison of old coins and new coins' performance
Historically, newer altcoins (tokens that have been around for less than two years since the Token Generation Event, TGE) have often outperformed established coins over different time periods. However, this bull market presents a starkly different trend: established projects (such as $XLM, $XRP, $ADA, $DOT, and $ATOM) have become the dominant force in the market, while new coins have performed poorly.
Next, we will explore the underlying reasons for this phenomenon, its potential implications, and insights for the future.
Analyzing trend changes: Key insights
1. New capital inflow, rather than fund rotation
The comprehensive rise of old 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.
2. Retail investors are returning, but their focus is different
With the rise in Coinbase app rankings and increasing views of crypto-related YouTube content, signs of retail investor return are quite evident. However, contrary to the expectation that retail investors would funnel funds into high-risk Memecoins, this capital seems to be flowing more towards established projects from the previous 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 last bull market.
3. Familiarity and trust as deciding factors
The established altcoins that have performed well in this bull market are mostly star projects from the previous bull market. This suggests that returning retail investors may be 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 are therefore more inclined to choose familiar projects.
4. The impact of generational differences
At the same time, 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 inflows.
5. The impact of inflation
Another important factor leading to the poor performance of new altcoins is inflation. In contrast, 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, future market dynamics will be worth keeping an eye on. 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 in the bull market: inflation and the demographics 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.
Let's illustrate with some real examples:
In 2021, $SOL reached a price of $258, with a market cap of $75 billion. Today, 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 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 peak (ATH) of 4.6 billion USD, the price has failed to reach a new high.
· $ENA: Currently near its historical peak market cap (2.12 billion USD vs. current 1.84 billion USD), but the price has dropped from $1.49 to $0.64.
· $ARB: ATH market cap in March was 4.6 billion USD, now down to 3.8 billion USD. March price was $2.1, now only $0.8.
· $SEI: ATH market cap was 2.8 billion USD, recently at 2.25 billion USD; ATH price was $1.03, now at $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 quietly undermining the potential returns of many assets. As circulating supply increases, maintaining or growing token prices requires more capital input. For assets with high inflation rates, investors must contend with a difficult struggle, even in a bull market.
How to tackle the inflation challenge
To better protect their returns in a bull market, investors can adopt the following strategies:
1. 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.
2. Diversify wisely: Prioritize projects with a limited total supply or clearly defined inflation caps, such as Bitcoin (BTC).
3. Assessing 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 have a completely different background and mindset than us.
To truly understand the behavior of these retail investors, it might help to recall the time when you first encountered cryptocurrency. At that time, you may have only had an account on a centralized exchange (CEX), filled with token codes that were completely unfamiliar to you.
I believe that the newly entering retail investors can be roughly divided into the following three categories:
· Generation Z (Gen Z): This generation may buy Memecoins (typically entertainment-driven and highly volatile tokens) due to the popularity of TikTok.
· Generation X (Gen X): This generation may have some experience in crypto investments from previous bull markets.
· Generation Y (Gen Y): They have recently been attracted to the market due to stock trading being open to retail investors, and they may show interest in the crypto market.
Recently, I conducted an in-depth study on the investment mindset of Generation Z. Compared to other generations, they exhibit significant differences in risk attitudes and behavior patterns. The following description may apply more to the average Generation Z investor. If you are a Generation Z reader and find this content does not apply to you, you may be one of the few exceptions.
For Generation Z, taking risks and suffering losses is often undesirable. They are more inclined to engage in low-risk activities, such as completing Galxe tasks, playing Hamster Kombat games, or participating in airdrop mining to earn returns. 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 find it an exciting adventure. But as losses occur due to market volatility, 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 is more inclined 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, making 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.
