Written by: Hyphin
Compiled by: Yangz, Techub News
Maybe, buying Bitcoin is the best option after all.
Despite continued positive price action for major cryptocurrencies and U.S. stocks, confidence in altcoins appears to be at an unusually low level. Expectations instilled by previous cycles have left many investors disappointed with altcoin performance in this bull run, and portfolio returns have stagnated.
status quo
Market sentiment in the cryptocurrency industry is often fickle. First, investors tend to exaggerate various market news, especially when they have a large position in a certain token. Second, investors' prejudices against certain tokens may change at any time. Therefore, the sentiment on social media cannot be used as a reliable indicator to judge the market outlook. What we can do is to plot the relevant data on the chart and perform a scenario analysis to determine the severity of the current situation.
By tracking indices and composite charts of various global indicators, we can get a general understanding of the entire market, helping to determine where the majority of value within the industry lies and how it is changing.
Global cryptocurrency market capitalization based on data from 14,759 cryptocurrencies on 1,129 exchanges; Source: CoinGecko
Over the past year and a half, the total market capitalization of cryptocurrencies has grown significantly but with surprisingly little volatility. Although Bitcoin has hit all-time highs, the overall market is still far behind compared with the mania period of 2021. The reason behind this is mainly that altcoins cannot keep up with Bitcoin’s growth rate. The flow of funds into speculative assets was less than expected, catching many people off guard.
To better illustrate this phenomenon, we can plot Bitcoin versus the altcoin market (excluding Ethereum) to show Bitcoin’s continued appreciation.
7-day rolling average ratio of altcoin market capitalization to Bitcoin market capitalization
There is no doubt that in this bull run, Bitcoin has stolen the show, and has taken more and more market share during its rise, leaving altcoins far behind. In previous cycles, altcoins tried to catch up with Bitcoin, but now it has become a pipe dream. The step-by-step decline in liquidity has curbed any possibility of starting the next alt season across the entire market.
7-day rolling average ratio of altcoin market capitalization to Ethereum market capitalization
Ethereum has maintained its lead despite being mocked for its lackluster price action. Speculators who looked for opportunities in the on-chain ecosystem, rather than memecoins or any stablecoin-denominated tokens, have had a relatively easy time in the "purgatory" market. Our sincerest condolences to those investors who fell for the Ethereum Beta scam.
Additionally, the Altcoin Investment Index, which is widely used to find favorable conditions to enter or exit the altcoin market, has been sending worrying signals, suggesting that the prevailing view on market dynamics may not be applicable to the current situation.
Altcoin Investment Indicator: A summary chart similar to the TOTAL/TOTAL3 oscillator for determining long-term altcoin investments
The correlation between the mainstream asset and other altcoins has proven to be helpful in determining the current state of the market. Lower oscillator values (blue line) coupled with rising Bitcoin prices are often seen as buying opportunities for altcoins, as they are believed to be undervalued and will eventually follow suit. However, recent data shows that the bullish cycles for altcoins have become short-lived and weak, forcing investors to make short-term investments instead of uncertain longer time frames.
As shown in the figure below, although many tokens are considered to have high upside potential, they ultimately fail to deliver excess returns.
Price returns of the top 250 altcoins compared to Bitcoin and Ethereum
Further dampening sentiment, the disappointing performance of the top 250 altcoins by market cap compared to the two largest assets (Bitcoin and Ethereum) that have been somewhat ignored by participants due to their overvaluations.
Finding Opportunities in a Downturn in Altcoin Markets
It is not difficult to find that the market landscape has changed over time, and in order to beat the index, identifying trends and narratives is more important than ever. The era of unwarranted crazy growth is gone. The dispersion of liquidity and the decline in trading volume have also concentrated most of the gains in a few areas. Although general indicators show that altcoins as a collective have gained little value, this performance also masks the differentiated growth of individual asset groups in the altcoin market.
Market capitalization growth of individual asset classes relative to other currencies since the market bottom
A strict look at the market cap changes of the tokens in each basket since the rally began shows that most of the tokens in the mature categories have fallen below the benchmark. On the other hand, emerging sectors with a lot of opportunity, traction, and new developments have performed well. It is important to note that outliers can exist in any industry, and the growth of a specific group is only vaguely representative of the performance of the assets covered.
To review what has happened so far and look for opportunities, we can focus on a few relevant categories and measure the price returns of their most valuable assets.
Price return calculation method: (Current Price - Initial Price) / Initial Price * 100. To take into account recently launched products that rank high in their tracks, the initial price is queried from November 21, 2022 or the first entry on Coingecko. The current price is the price queried at the time of writing this article (June 18, 2024).
Memecoin
Memecoin is undoubtedly one of the themes of this cycle. In the past year, more investors have become rich overnight from investing in memecoin than have won the lottery, and similarly, more wealth has been lost from investing in memecoin than the tax authorities have collected in taxes.
Price performance of the top 10 meme coins by market cap
In percentage terms, the total memecoin valuation has not changed as much as one might expect, as tokens such as Dogecoin and Shiba Inu account for nearly half of the memecoin market share while seeing minimal gains. Aside from a few tokens that have seen huge success on Ethereum, the majority of memecoin activity has occurred on Solana and most recently, Base. Three of the top ten memecoins with the highest returns and new market cap entrants are from Solana, with two of those tokens seeing returns exceeding five figures.
DeFi
When it comes to DeFi, we think of income, fundamentals, and the future of finance. As more and more people join in on-chain transactions, indicators such as protocol usage, transaction volume, and total locked value are rising, but can these data bring about a new round of DeFi Summer? Actually not.
Price performance of the top 10 DeFi tokens by market cap (excluding DeFi 1.0 tokens)
Innovation and product-market fit aside, the price returns of current DeFi tokens (excluding 1.0) are simply terrible. Except for Pendle and The Graph, other projects have failed miserably. In the past few years, liquidity staking has seen massive growth and adoption as an important track, but governance tokens representing liquidity packaging have not seen growth. In addition, tokens related to decentralized exchanges have the worst price performance, with only Jupiter rising.
While the data in the above table is worrying, the pioneers of the industry, the tokens of the DeFi 1.0 era, are even more surprising.
Price performance of the top 10 DeFi 1.0 tokens by market cap
Protocols from the DeFi 1.0 era had high valuations, yields, and usage, but they have proven to underperform in this cycle unless yield strategies are in place to offset token depreciation. A recurring issue that has led to poor performance of DeFi protocol tokens is the lack of real-world utility for the tokens beyond liquidity mining. Perhaps fee conversions will be a lifeline that provides users with real yields instead of diluting their holdings through token releases, creating huge buying pressure on tokens.
L1
L1 tokens have been by far the most popular and most traded category among speculators and the face of the cryptocurrency industry. Led by Bitcoin and Ethereum, L1 tokens have historically demonstrated solid price action. Advances in the space have given rise to numerous alternatives vying for market dominance, with their success tied to their ability to foster a thriving ecosystem, attracting skilled builders and capturing a large user base that continuously interacts with the application. In some cases, L1 tokens are able to gain a foothold based on their technical specifications alone.
Price performance of the top 10 L1 tokens by market cap
Many of the projects in the table above have doubled their price returns relative to USD, but only three have surpassed the leaders of the L1 track, namely Bitcoin and Ethereum. Solana has not only been hailed as the "top player" of L1 in this cycle due to its returns, but has also quickly become one of the most used chains in the market and a well-deserved memecoin center. Solana has replaced BSC in the absence of Binance Smart Chain's failure to reproduce a similar shitcoin craze as the previous round of increases. Notably, despite Kaspa's lack of mainstream attention and relatively low trading volume, its returns have exceeded Solana.
L2
To solve problems such as scalability and high transaction fees, Rollup has become an indispensable part of the on-chain ecosystem.
Price performance of the top 10 L2 tokens by market cap
Unlike the base layers they leverage, L2s have seen mediocre returns, with low-volume, high-valuation VC chains like Starknet and Arbitrum mired in losses. New concepts related to zero-knowledge and Bitcoin infrastructure have seen significant value growth.
in conclusion
With the harsh realities of the market and the liquidation emails, it’s tempting to think that the altcoin investment opportunity has passed. It’s clear at this juncture that it’s going to be increasingly difficult to beat the returns of Bitcoin and Ethereum if you don’t keep up with the narrative. However, unless you’re watching the market for a long time or have enough influence, it’s impossible to catch every trend. In today’s market, the industry is full of negative sentiment, which means that investors need to rebalance their portfolios and consider risks. The future of the altcoin market is still unclear, but it shouldn’t be any worse.
