Dan Morehead, the Founder and Managing Partner of Pantera Capital, recently looked into whether altcoins can outperform Bitcoin during this bull cycle.
Dan Morehead noted that this is a question they often hear from digital assets and blockchain industry participants.
His colleagues Cosmo Jiang and Erik Lowe provide some perspective on this as well.
Dan Morehead has helped summarize these trends via LinkedIn.
Their analysis uses the two most-recent cycles “when the investible universe of tokens beyond bitcoin had meaningful market share.”
They’ve observed that bull cycles “have two pronounced phases.”
Dan noted that you’ll notice how altcoin (all crypto coins other than Bitcoin and Ethereum) market share declines in the initial phase of cycles “while total market capitalization inches upward, indicative of bitcoin’s outperformance. Around 60-70% through the bull cycle, altcoin market share spikes up – fast (phase 2).”
Dan also mentioned that available data shows “the actual returns of bitcoin and altcoins in terms of market capitalization growth, as well as how much each contributed to the overall growth of the cryptocurrency market.”
In these cycles, bitcoin consistently “outperformed altcoins in phase 1 of the upswing. In phase 2, altcoins substantially outperformed bitcoin. What’s interesting is that the magnitude of outperformance is so large that altcoins have outperformed bitcoin across the full length of both cycles.”
Dan added that while one of the highest sources of alpha has historically “come from a perfectly timed rotation from bitcoin into altcoins as phase 2 commences, that relationship won’t necessarily always hold true nor is timing that rotation perfectly a reality for any trader.”
He pointed out that perhaps “the most feasible way to generate alpha in the space is by maintaining consistent exposure, investing in altcoins that have fundamental reasons to appreciate multiples more than bitcoin in total.”
Their thesis at Pantera Capital is “that tokens underlying protocols that have product market fit and are generating real revenues with strong unit economics will perform best in the coming cycle.”
So far, bitcoin is reportedly “up 2.8x and altcoins are up 1.7x in this cycle.”
Although many crypto analysts and investors have their own approach to allocating funds to the nascent digital asset markets, it’s worth noting that these new types of assets are still quite speculative. It is not uncommon for investors and traders to experience great success with some investments, however, there have been far too many reports of people losing large amounts of money due to poorly-researched investment strategies.