Original title: The New Altcoin Drama: Inflation, Awareness, and TikTok
Original author: Stacy Muur, cryptocurrency researcher
Original translation by: Deep Tide TechFlow
We have finally entered a bull market, but this 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 a bit 'stingy'. Many newer tokens have performed poorly, while established coins like XRP, $ADA, $DOT, and $ATOM have achieved impressive returns.
Background: Comparison of performances between old coins and new coins
Historically, newer altcoins (tokens that have been around for less than two years since their TGE, or Token Generation Event) have often outperformed established coins over different periods. However, this bull market presents 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 mediocrely.
Next, we will explore the underlying reasons, potential implications, and insights for the future behind this phenomenon.
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 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 return, but with different focus
With the rise in rankings of the Coinbase app and the increase in views of crypto-related YouTube content, signs of retail investors returning are very apparent. However, contrary to the expectation that retail investors would funnel money into high-risk Memecoins, this capital seems to flow more toward projects that have already matured in the last bull market. This may indicate that the current cohort of retail investors is older, more risk-averse, or more familiar with the well-known altcoins from the previous bull market.
3. Familiarity and trust as deciding factors
The established altcoins that have excelled in this bull market are basically the star projects from the last bull market. This suggests that the returning retail investors are likely 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, hence they prefer to choose well-known projects.
4. Impact of generational differences
At the same time, Generation Z investors (who typically come into contact with cryptocurrency 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.
5. Impact of inflation
Another important factor contributing to the poor performance of new altcoins is inflation. Relatively speaking, established coins have a higher circulating supply proportion, thus new capital is not diluted by continuous token issuance.
If you are interested in these trends, the future market dynamics will be worth watching closely. 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 during 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 investors' returns. For any investor hoping to gain returns in this bull market, understanding the impact of inflation on asset value is crucial.
We 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 caused this change? The answer is: an increase in circulating supply. As supply expands, the value of individual tokens 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, its price has failed to reach a new high.
$ENA: Currently close to its historical high market cap ($2.12 billion vs. current $1.84 billion), but its price has dropped from $1.49 to $0.64.
$ARB: The ATH market cap in March was $4.6 billion, which has now fallen to $3.8 billion. The price in March was $2.1, while now it is only $0.8.
$SEI: ATH market cap was $2.8 billion, while recently it has been $2.25 billion; ATH price was $1.03, while 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 quietly eroding the potential returns of many assets. With the increase in circulating supply, maintaining or increasing token prices requires more capital investment. For assets with high inflation rates, investors must confront 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. Study Tokenomics: Before investing, carefully analyze the project's inflation rate and token distribution plan. Focus on those projects with slower supply growth or lower inflation rates.
2. Diversify wisely: Prioritize projects with a limited total supply or clearly set inflation caps, such as Bitcoin (BTC).
3. Assessing real returns: When calculating investment returns, consider inflation factors and adjust return expectations.
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, ordinary retail investors who have just entered the market due to favorable election news or Bitcoin prices nearing $100,000 come with completely different backgrounds and mindsets.
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 a centralized exchange (CEX) account 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 purchase Memecoins (often entertaining and highly volatile tokens) due to the popularity of TikTok.
Generation X (Gen X): This generation may have some prior experience in cryptocurrency investments from the previous bull market.
Generation Y (Gen Y): In recent years, they have been drawn 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 behavioral 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, then you may be among 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 rewards by completing Galxe tasks, playing Hamster Kombat games, or participating in airdrop mining. The primary investment for these activities is time, not money, making them more appealing.
However, trading is a completely different realm. When Generation Z encounters the bull market through TikTok, they may initially perceive it as an exciting adventure. But as losses from market volatility set in, they are likely to swiftly feel the harshness of reality.
In contrast, the situation for Generation 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 easily 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. Furthermore, 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 that my analysis is 100% correct, nor does it represent the only explanation.
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