Altcoins offer diverse, innovative features, promising technological advances and potentially lucrative investment opportunities. Many times certain altcoins are making gains that surpass Bitcoin, colloquially known as alt season. However, K33 Research analysis shows that in the long run, only Bitcoin (BTC) is a better investment strategy than an altcoin portfolio.
Altcoin portfolio underperformed Bitcoin
Bitcoin has witnessed three consecutive bull and bear markets that started in 2013 and the last one coming in 2021. In each cycle Bitcoin’s price surpassed the peak of the previous cycle. It then rose parabolicly in a very short period of time, usually a few months. In 2013, BTC peaked around $1,175. Afterwards, it followed a downward trend for two years. At that time, the altcoin market was in its infancy. Nominal onramps to Bitcoin were limited, and exchanges converting them to altcoins were rare.
However, at the end of 2015, a number of altcoins emerged, including the invention of Ethereum. Several exchanges that support the conversion of Bitcoin to other cryptocurrencies have also paved the way for the altcoin market. Altcoins did not rise until April 2017, when the price of Bitcoin rose above its 2013 peak. In the second half of 2017, the ICO boom in Ethereum and the individual investment excitement around Ripple’s XRP led the altcoin season until January 2018, with many tokens outperforming Bitcoin.
However, after the bull market, altcoins suffered relatively larger losses compared to Bitcoin. This shows that altcoins are rising primarily as users buy in hopes of higher returns during Bitcoin bull markets. The Bitcoin and altcoin market cap chart shows that during the 2018-2019 bear market, Bitcoin found support around $6,500 after recovering from the lows of $3,250 in late 2018. However, altcoins remained low for most of the bear market period. However, Bitcoin reversed its trends after climbing above its previous high of $20,000.
Bitcoin price (top) and altcoin market cap (bottom) / Source: TradingViewK33 Research has calculated the performance of a $1 investment in 1,009 altcoins that have ranked in the top 100 by market capitalization on CoinMarketCap since 2015, compared to the same amount of simultaneous investments in Bitcoin. While the altcoin portfolio is worth around $7,000 today, the Bitcoin strategy alone will be worth $50,000.
Altcoin and Bitcoin performance since 2015 / Source: K33 ResearchBitcoin and altcoin market performance comparisons
Altcoins are often narrative driven. Also, many narratives die with the evolution of the market. For example, privacy tokens were very popular in 2017. However, due to regulatory scrutiny, they fell from the top 100 by market cap. Similarly, many DeFi tokens such as Compound, which flooded the market in 2020, fell from the top crypto list due to the decline in DeFi usage and the accompanying demand to hold governance tokens with no return.
Altcoins are also subject to volatility and unpredictable changes, with regulatory uncertainty hovering over most tokens. It is possible that different altcoins will have their own seasons at different times. Also, it is possible that the duration of an alt season can vary significantly. This requires the trader to have perfect timing to make a profit. K33 analysts looked at 1,009 altcoins in the top 100 by market cap since 2015. It found that more than two-thirds of them are currently inactive. Only 9.11% of these altcoins yielded positive returns. Also, only 1.5% outperformed Bitcoin’s 50x return.
Performance of 1,009 altcoins in the top 100 market cap rankings since 2015. Source: K33 ResearchThe report noted that altcoin investments have only been profitable twice since 2015. In 2017, when the altcoin strategy gained a significant advantage due to the superior performance of Ether and XRP, and in 2021, when the altcoin portfolio briefly approached the value of Bitcoin during the DOGE and SHIB hype. As you follow on Kriptokoin.com, altcoins excluding ETH have made relatively sparse gains, especially in the second half of 2021, when Bitcoin regained $60,000 in March 2023 and hit an all-time high of $69,000.
Positive break in Bitcoin’s dominance
Besides a breakout of Bitcoin’s all-time high, another powerful indicator that helps identify long-term trend reversals in altcoins is breaks in Bitcoin’s dominance levels from jacks. Altcoin seasons in the previous two cycles were marked by BTC’s dominance falling below 60%. Following the reversal of the uptrend, the bottom of Bitcoin’s dominance also coincided with the top of the total market capitalization of altcoins.
Total market cap of crypto excluding bitcoin (above). BTC’s dominance over the crypto market (below) / Source: TradingViewThanks to BlackRock’s application for the Bitcoin ETF, the dominance of Bitcoin rose above 50% on June 19, 2023. This has led to more altcoin losses as it marks an important historical resistance point. In the second half of the previous bear market, which lasted between 2018 and 2020, the dominance of Bitcoin rose above 70%. On the other hand, Bitcoin’s performance was relatively better, with its price held above the 2018 low of around $3,250. K33 Research also shows that altcoin performances have weakened significantly during this period. It also reveals that he made new lows towards the end.
Analysts from K33 Research say in the report that altcoin portfolios show potential for extra profits in Bitcoin. But he adds that this requires “timing the market or picking altcoin winners.” Given that BTC outperforms altcoins in the long run, an effective investment strategy for crypto investors could be dollar cost averaging (DCA) to Bitcoin.
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