Altcoins, or alternative cryptocurrencies, have gained popularity in recent years due to their diverse features, technological advancements, and potential investment opportunities. While specific altcoins may experience significant gains that surpass Bitcoin (BTC) during certain periods, a long-term analysis conducted by K33 Research suggests that a “Bitcoin only” investment strategy has been more profitable than holding an altcoin portfolio.
Bitcoin has gone through three consecutive bull and bear market cycles since 2013, with the latest one occurring in 2021. In each cycle, Bitcoin’s price has seen a parabolic rise in a relatively short period of time, usually a few months, after surpassing the peak of its previous cycle. During the 2013 cycle, Bitcoin reached a peak of around $1,175 before entering a downtrend for two years. At that time, the altcoin market was still in its early stages, with limited fiat onramps to Bitcoin and few exchanges that supported the conversion of Bitcoin to other cryptocurrencies. However, by the end of 2015, the altcoin market had begun to emerge with the introduction of Ethereum and the establishment of exchanges that facilitated the trading of altcoins.
It wasn’t until April 2017 when Bitcoin’s price broke above its 2013 peak that a bullish run in altcoins took place. In the second half of 2017, the initial coin offering (ICO) boom on Ethereum and the retail investment frenzy around Ripple’s XRP led to a surge in altcoin prices, with many tokens outperforming Bitcoin until January 2018. However, after the bull market ended, altcoins experienced larger losses compared to Bitcoin. This suggests that altcoins primarily gained value as users bought them during Bitcoin bull markets in the hope of achieving higher returns.
During the bear market of 2018-2019, Bitcoin found support around $6,500 after recovering from lows of $3,250 in late 2018. Altcoins, on the other hand, continued to hover around their lows for most of the bear market and only reversed their trend after Bitcoin broke above its previous peak of $20,000. K33 Research analyzed the performance of a $1 investment in 1,009 altcoins since 2015 as they entered the top 100 ranks by market capitalization on CoinMarketCap, compared to the same amount invested in Bitcoin simultaneously. The result showed that the altcoin portfolio would be worth approximately $7,000 today, while the Bitcoin-only strategy would yield around $50,000.
One of the challenges with altcoins is that they are often driven by narratives that can change over time. For example, privacy-based tokens were popular in 2017 but dropped out of the top 100 rank due to regulatory scrutiny. Similarly, many decentralized finance (DeFi) tokens that gained popularity in 2020 have also fallen out of the top cryptocurrency list due to a decline in DeFi usage and the demand for non-yielding governance tokens. Altcoins are also subject to volatility and unpredictable shifts due to regulatory uncertainty. Different altcoins may experience their own seasons at different times, and the duration of an altcoin season can vary significantly, making it difficult for investors to time their investments for maximum profit.
According to K33 Research, over two-thirds of the 1,009 altcoin projects that entered the top 100 ranks by market capitalization since 2015 have become inactive. Only 9.11% of these altcoins yielded positive returns, with only around 1.5% outperforming Bitcoin’s 50X returns. Altcoin investments have been profitable only twice since 2015: in 2017, when the altcoin strategy gained an edge due to the outperformance of ether (ETH) and XRP, and in 2021 during the hype surrounding Dogecoin (DOGE) and Shiba Inu (SHIB).
Another indicator that suggests a shift in the altcoin market is breakouts in Bitcoin’s dominance levels. Altcoin seasons in the previous cycles were marked by a breakdown in Bitcoin’s dominance below 60%. After the bullish trend reversal, the bottom in Bitcoin’s dominance coincided with the top in the total market capitalization of altcoins. Currently, Bitcoin’s dominance has broken above the 50% level, signaling the potential for further losses in altcoins.
While altcoin portfolios have the potential for higher profits than Bitcoin, they require timing the market or picking the right altcoin winners, which can be risky and challenging. For crypto investors looking for a more conservative approach, dollar cost averaging (DCA) into Bitcoin can be an effective long-term investment strategy. DCA involves regularly investing a fixed amount of money into a particular asset over a specific period, regardless of the asset’s price, to average the principal amount and remove the need to time the markets.
In conclusion, while altcoins may offer promising features and investment opportunities, the analysis suggests that a “Bitcoin only” investment strategy has been more profitable over the long run. Altcoins are subject to volatility, unpredictable shifts, and regulatory uncertainty, making it difficult to time investments for maximum profit. Investors looking for a more conservative approach can consider dollar cost averaging into Bitcoin as a sensible and relatively safe investment strategy.
