Bitcoin Remains the Benchmark, But Altcoins’ Performance Shows Power Law Dynamics, says Felician Stratmann
As the cryptocurrency market matures, returns are increasingly following a power law distribution, with a small group of outperforming assets generating the majority of portfolio returns, according to Felician Stratmann.
Bitcoin has long been the benchmark for many digital asset investors. Its dominance has made it a tough contender to beat, especially over the past few years, leaving many investors with the impression that altcoins are increasingly irrelevant. But has Bitcoin always been so difficult to outperform?
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Stratmann and his team examined the performance of the top 150 cryptocurrencies (excluding memecoins and applying liquidity filters on major centralized exchanges) dating back to 2019 to determine what it took to beat Bitcoin over time. The selection of the top 150 cryptocurrencies reflects the range of tokens a manager of a liquid token strategy might evaluate. Notably, the number of tokens meeting liquidity requirements was smaller until late 2020.
Token Performance: How Often Have Altcoins Outperformed Bitcoin?
In the earlier years (2019 and 2020), beating Bitcoin seemed almost easy, with many tokens outpacing its performance by large margins. In fact, some tokens surpassed Bitcoin by over 1000%. During this time, the average market cap of these outperforming tokens was relatively low, around the 30th rank. However, this trend has shifted over the past few years.
From 2021 onward, only 10-20% of the top 150 tokens have outperformed Bitcoin over any 365-day period, and their outperformance has moderated to around 100%. Additionally, the market cap rank of these outperformers has risen, with the average rank now fluctuating between 60 and 80.
Insights and Implications
This shift reflects how the cryptocurrency market has evolved. With a maturing industry and rising expectations from investors, capturing outsized returns has become more challenging. Selecting the right tokens now requires greater skill and deeper insight than before.
Despite this, the analysis shows that smaller altcoins still offer significant upside potential. Even within a more mature market with tighter liquidity, certain top tokens continue to provide returns in excess of 100% compared to Bitcoin.
These findings point to the power law dynamics of the crypto market, where a small number of outperforming assets account for the majority of the returns. As such, diversification remains essential for investors, especially in the liquid token space. Adopting a venture capital-style diversification approach could help investors maximize their chances of success, despite the increased competition from Bitcoin.
Although altcoins face more challenges in outpacing Bitcoin, they remain a vital part of the broader crypto ecosystem, and investors can still capitalize on their growth potential with a strategic, diversified approach.
Disclosure: The content provided is for informational purposes only and should not be construed as investment advice. Investing carries a high degree of risk, and past performance does not guarantee future results. Please review Outerlands Capital’s terms and conditions.
Note: The views expressed in this article are solely those of the author and do not necessarily reflect the views of CoinDesk, Inc. or its affiliates.
