Why You'll Lose Investing in Altcoins
There is a theory in crypto that you can pick absolutely any coin and you’ll be able to make great profits with it. That belief is held even stronger during past bull runs when that has often been proven true. If you can pick any coin, why would you choose a crypto such as Bitcoin? Due to its larger market cap, it will be much harder for its price to increase, and you could see higher percentage gains in lower-cap coins.
While in some circumstances this is true, at the same time, it is a dangerous road to begin heading down.
Let me explain why.
The cryptocurrency market is evolving. While it is still an incredibly young market, it is growing up quickly. What this means is that what was true during 2017 and 2021, will likely not be the same after the next Bitcoin halving in 2024. After all, you wouldn’t expect the same result that you got from giving a toddler their favorite race car toy when they were 4 years old, and expect the same result when they were 12 years old. This doesn’t mean there won’t be get-rich-quick schemes in crypto. There will be for the foreseeable future. However, I’m taking the viewpoint of a value investor who plans to HODL and stay in this market for the long term.
Every cycle there is a new crop of hyped altcoins that soar to incredible heights. They reach all-time high prices in terms of dollars and their BTC percentage ratio. Investors often declare them the next big “Bitcoin Killer” or “Ethereum Killer.” And then the bear market comes.
These new coins that were supposed to be the next big thing often plummet by over 90%. There are a few projects that have overcome this hurdle to eventually recover, such as Ethereum. Some others continue but have dropped drastically in their BTC ratio, and a large number of other coins disappear onto the horizon.
(Top 10 February 5th, 2017)
One of my favorite things to do is to look at historical snapshots of crypto prices. It gives us a sense of what has happened in the past, and perhaps what we can expect, or should be prepared for in the future. Here is a snapshot of the top 10 cryptos in terms of market cap in early 2017. There will be a few projects that you know, but today only 3 of them remain in the top 10. Likely, there are at least 2 or 3 that you have never even heard of. Perhaps that should be expected because that was 5 years ago and the market was much younger.
(Top 10 February 2nd, 2020)
But moving forward to 2020 and the top 10 looks much different once again. There are likely more familiar names in this group, but there were also projects that had no business being in the top 10. One thing to note about projects being familiar and well-known. While they are well-known today, if they fall off that won’t be the case 5 years ago. After all, in 2017, most of those top 10 projects were well-known to crypto enthusiasts. What is well thought of today, may not be the case in the future. Likely, you have never heard of MaidSafeCoin.
(Top 10 December 9th, 2022)
And finally here is the top 10 list at the time of writing this article. You can begin to see how the market has evolved over the years. Stablecoins have become one of the largest focuses of the market. It’s also obvious that there are only 2 blue-chip assets in Crypto. Bitcoin and Ethereum. Although if BNB can maintain popularity for another cycle, perhaps we can add that into the sacred category as well.
The main point is this. If you are investing in crypto for the long term, picking any random project and holding through bull markets will not guarantee you huge gains. It is becoming much more necessary to choose high-quality projects. The projects that have real use-case, a following, reputation, and value. Those meme coins that you bought last cycle thinking would make you rich, will likely never recover. I’m not against investing in altcoins. I do so myself at times. But the strategy should often be to take the profits made from those coins and store them in Bitcoin or Ethereum. The truth is that over time, most altcoins trend towards zero vs both Bitcoin and Ethereum.
There are two major takeaways from this analysis:
Only Bitcoin and Ethereum have proven to have staying power when it comes to holding their value over multiple bull cycles.
2. During each Bitcoin bull cycle, a new crop of altcoins emerges but they always end in the same bloodbath when priced against Bitcoin over the long term.
There are some exceptions, but historically this has often played out true.
How about you? What percentage of your portfolio is BTC & ETH vs Altcoins?
As always, thank you for reading!
My largest holding currently in my crypto portfolio is BCH at roughly 51% while my BTC holdings only takes up 13% of my portfolio, although that may change. I also hold some ETH, but it's only slightly more than 1%. The other 35% is in altcoins.