Original title: The New Altcoin Drama: Inflation, Awareness, and TikTok
Original author: Stacy Muur, crypto researcher
Original text translated by: Shenchao TechFlow
We have finally ushered in a bull market, but this also exposes 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 feels somewhat 'stingy.' Many newer tokens have underperformed, while established coins like XRP, $ADA, $DOT, and $ATOM have achieved remarkable returns.
Background: Comparison of performance between old coins and new coins
Historically, newer altcoins (tokens less than two years old since their TGE, or Token Generation Event) have typically outperformed established cryptocurrencies over different time periods. However, this bull market shows 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 poorly.
Next, we will explore the reasons behind 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 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.
2. Retail investors are returning, but with different focal points
With the rise in rankings of the Coinbase app and the increased viewership of crypto-related YouTube content, signs of retail investors returning are quite evident. However, unlike the expected scenario where retail investors would pour funds into high-risk Memecoins, this capital seems to flow more towards the matured projects from the previous 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 previous bull market.
3. Familiarity and trust as deciding factors
The established altcoins that have performed prominently in this bull market are mostly the star projects from the previous bull market. This indicates that the returning retail investors are likely between the ages of 25 and 45, and they have a certain level of 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 they tend to opt for more familiar projects.
4. The impact of intergenerational differences
Meanwhile, Generation Z investors (who typically engage with cryptocurrency through TikTok or meme-driven content) may have limited disposable income. This might explain why, despite the return of retail investors, the Memecoin market has failed to attract significant capital inflows.
5. The impact of inflation
Another important factor contributing to the poor performance of new altcoins is inflation. In comparison, established coins have a higher proportion of circulating supply, so new capital won’t be 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 in 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 investor returns. For any investor hoping to yield returns in this bull market, understanding the impact of inflation on asset value is crucial.
We illustrate with some practical examples:
In 2021, $SOL reached a price of $258, with a market cap of $75 billion. Now, its price is still $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 individual tokens is diluted by inflation, necessitating a higher market cap to maintain the same price level.
Here are more similar cases:
$TAO: Although its market cap has surpassed its historical high (ATH) of $4.6 billion, the price has not reached a new high.
$ENA: Currently close to its historical high market cap ($2.12 billion vs. current $1.84 billion), but the price has fallen 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 was $2.1 in March, now only $0.8.
$SEI: ATH market cap was $2.8 billion, while recently it is at $2.25 billion; ATH price was $1.03, 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 continues to quietly erode 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 cope with inflation challenges
To better protect their returns in a bull market, investors can adopt the following strategies:
1. Research 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. Evaluate real returns: When calculating investment returns, consider the impact of inflation and adjust expectations for returns.
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 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, the average retail investor who has just entered the market due to favorable election news or Bitcoin nearing $100,000 comes with a completely different background and mentality.
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 might have only had an account with a centralized exchange (CEX) filled with tokens you were completely unfamiliar with.
I believe that the new retail investors entering the market can roughly be divided into the following three categories:
Generation Z (Gen Z): This generation may buy Memecoins due to the popularity of TikTok (often tokens that are entertaining and highly volatile).
Generation X (Gen X): This generation may already have some experience in crypto investments 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, which may spark their interest in the crypto market.
Recently, I conducted an in-depth study of the investment mindset of Generation Z. Compared to other generations, they exhibit significant differences in risk attitude and behavior patterns. The following descriptions may be more applicable to the average Gen Z investor. If you are a Gen 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 often inadvisable. They prefer to engage in lower-risk activities, such as earning rewards by completing Galxe tasks, playing Hamster Kombat games, or participating in airdrop mining. The biggest investment for them is time, rather than money, which makes it more appealing.
However, trading is a completely different domain. When Generation Z engages with the bull market through TikTok, they may initially find it an exciting adventure. But as market volatility leads to losses, they are likely to quickly feel the harshness of reality.
In contrast, the situation for Gen Y is different. If they become interested in cryptocurrency, 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 inclined to open CoinMarketCap, check the token list, analyze market charts, and make decisions based on data. Additionally, they typically have more disposable income than Generation Z, making their investment choices more rational and cautious.
Conclusion
The above are some of my views on the behavior of retail investors in the current market, which are largely consistent with recent market performance. Of course, this does not mean my analysis is 100% correct, nor does it represent the only explanation.
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