Original title: The New Altcoin Drama: Inflation, Awareness, and TikTok
Original author: Stacy Muur
Original translation: Deep Tide TechFlow
We have finally entered a bull market, but this has also exposed some weaknesses in the economic reality of Web3.
For market participants who have continuously optimized 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 old coins and new coins' performance
Historically, newer altcoins (tokens that have been around for less than two years since their TGE, or Token Generation Event) typically outperform established coins over different time periods. However, this bull market has shown a drastically 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 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 overall rise of established altcoins indicates that this trend is not driven by the rotation of funds within the cryptocurrency 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 rankings of the Coinbase app and the increasing viewership of cryptocurrency-related YouTube content, signs of retail investors' return are very evident. However, contrary to expectations that retail investors would invest in high-risk Memecoins, these funds seem to be flowing more toward projects that have already matured in the previous bull market. This may indicate that the current retail investor group is older, more risk-averse, or more familiar with well-known altcoins from the last bull market.
3. Familiarity and trust as determinants
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 are likely to 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 Networks), RWA (Real World Assets), and AI, and therefore prefer to choose well-known projects.
4. The impact of generational differences
Meanwhile, Generation Z investors (who typically encounter cryptocurrency through TikTok or meme-driven content) have less available capital. This may 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. Relatively speaking, 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 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 cryptocurrency returns
The current bull market has filled the cryptocurrency market with optimism, but it has also revealed a significant reality: inflation is quietly eroding investors' returns. For any investors hoping to gain returns in this bull market, understanding the impact of inflation on asset values is crucial.
Let’s illustrate with some practical 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, 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 peak (ATH) of $4.6 billion, the price has not reached a new high.
· $ENA: Currently close to its historical peak market cap ($2.12 billion vs. 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 down 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 the 'altcoin season' seems to have arrived, inflation is still quietly eroding the potential returns of many assets. With the increase in circulating supply, maintaining or growing token prices requires more capital input. For those assets with high inflation rates, investors must face a tough 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. Invest wisely in a diversified manner: Prioritize projects with 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 merely a macroeconomic term; it is actually the 'silent killer of returns' in the cryptocurrency 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, ordinary retail investors who have just entered the market due to favorable election news or the Bitcoin price nearing $100,000 have a completely different background and mindset from us.
To truly understand the behavior of these retail investors, think back to the time when you first encountered cryptocurrency. At that time, you may have only had an account with a centralized exchange (CEX) filled with token codes you were completely unfamiliar with.
I believe that the newly entering retail investors can be roughly divided into the following three categories:
· Z Generation (Gen Z): This generation may purchase Memecoins (which are often entertaining and highly volatile tokens) due to the popularity of TikTok.
· X Generation (Gen X): This generation may already have some experience in cryptocurrency investments from previous bull markets.
· Y Generation (Gen Y): Recently attracted to the market due to stock trading being open to retail investors, they may develop an interest in the cryptocurrency market.
Recently, I conducted an in-depth study of the investment mindset of Generation Z. Compared to other generations, they have significant differences in risk attitudes and behavior patterns. The following description may be more applicable to the average Generation Z investor. If you are a Generation Z reader and feel that 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 participate in low-risk activities, such as earning yields by completing Galxe tasks, playing Hamster Kombat games, or participating in airdrop mining. The biggest investment in these activities is time, rather than money, making them more appealing.
However, trading is a completely different domain. When Generation Z encounters the bull market through TikTok, they may initially find it an exciting adventure. But as losses due to market fluctuations occur, they are likely to quickly feel the harsh reality.
In contrast, the situation for Generation Y is different. If they develop an interest in cryptocurrency, 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 the token list, analyze market charts, and make decisions based on data. In addition, they generally have more disposable income than Generation Z, making their investment target selection more rational and cautious.
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 that my analysis is 100% correct, nor does it represent the only explanation.
