Bitcoin and the One-Hit Wonder Altcoins

Swan Private Insight Update #12

This report was originally sent to Swan Private clients on June 10th, 2022. Swan Private guides corporations and high net worth individuals globally toward building generational wealth with Bitcoin.

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Bear markets have a way of separating the cream from the crop.

This phrase has never been more true than it is today when it comes to the broader cryptocurrency industry. Everything was going great for altcoins when liquidity was flowing like water, due to ultra-low borrowing costs and stimulus checks, causing speculation to run rampant. It’s easy to sell a narrative in good times but it’s not so easy in hard times.

Now that the Federal Reserve has started tightening financial conditions and stimulus checks are long gone, economic conditions have deteriorated, and altcoin speculators have either left crypto altogether or are licking their wounds from the recent downwards price action.

As the conditions for financial assets have worsened, altcoins have suffered significantly or have blown up altogether. A perfect example of this was the recent Luna/UST crash that destroyed nearly $40 billion in value in a matter of days. When liquidity and new buyers dried up, the Luna/UST Ponzi scheme was left bare for all to see.

It’s times like these when speculators begin to have doubts about their risky altcoin investments. Unlike Bitcoin, these altcoins lack the fundamental properties that would enable them to be good long-term investments like scarcity, decentralization, and censorship resistance. Many were simply beneficiaries of the easy money environment. They were able to amass large market capitalizations without any real product-market fit or use cases. The classic “a rising tide lifts all boats” aphorism comes to mind.

No matter how fervent a believer is in a project or token, people tend to question their investment decisions when they see a bright red number staring back at them of -70%, -80%, or -90%. They begin to ask themselves questions like, “Am I missing something here?”, “Is there really any long-term potential in this token?”, and “Will this token ever go back up to its previous all-time highs?”

Well — I hate to be the bearer of bad news, but if history is any indication, many investors will be waiting a long, long time for their altcoins to reach their previous USD all-time highs, and they will be waiting until the end of time for them to reach their previous BTC all-time highs.

In order to provide some context, let’s take a look back at some of the altcoin darlings of past Bitcoin bull markets and see how they’ve performed since reaching all-time highs against Bitcoin in previous cycles.

Methodology

For this analysis, we will take a closer look at how the top 20 coins by market capitalization in each major Bitcoin bull cycle have performed against Bitcoin in the following cycle. There are three major bull cycles that have occurred so far in Bitcoin’s history. These are:

1. 2011-2013 — Bitcoin ran up 56,700% from around $2 to $1,100 at its peak.

2. 2016-2017 — Bitcoin ran up 8,595% from around $230 to $20,000 at its peak.

3. 2020-2021 — Bitcoin ran up 1,625% from around $4,000 to $69,000 at its peak.

For this piece, I obtained historical snapshots of the top 20 altcoins each week when Bitcoin made its cycle all-time high. I analyzed when the top 20 altcoins of each cycle made their all-time high exchange rate against Bitcoin. I then revisited these same coins in the next bull cycle and looked at the highest exchange rate they made against Bitcoin in the subsequent cycle.

Because I decided to use the highest exchange rate these altcoins made against Bitcoin in each cycle, you can consider this analysis as being generous to altcoins. Due to their low liquidity, many altcoins briefly made higher Bitcoin exchange rates in subsequent cycles when being pumped with low trading volume, only to fall significantly lower when priced against Bitcoin.

Keep this in mind as we dig further into the data.

2013-2017 Altcoin Darlings

The first major bull cycle peaked in 2013 at a little over $1,100 a coin. Back then, the idea of alternative cryptocurrencies to Bitcoin was a new idea. These altcoins were experimental and many were not thought of as serious projects. 

Many of these altcoins gained in popularity for a brief moment and then slowly faded into obscurity. After making an all-time high against Bitcoin in 2013, here is how the top 20 altcoins of 2013 performed against Bitcoin in the next bull cycle.

From above, one can see how a majority of these altcoins never made another all-time high against Bitcoin again.

Only two of the top 20 altcoins ended up ever making an all-time high against Bitcoin again, XRP and Infinitecoin.

Infinitecoin briefly made an all-time high against Bitcoin in 2017 when the illiquid coin randomly had a spike in trading volume on one single trading day. After that pump and dump, Infinitecoin went back down -93.6% against Bitcoin since it first made an all-time high in 2013.

XRP was the only altcoin from the 2013 bull cycle to make a subsequent Bitcoin all-time high in the 2017 bull cycle. It found its second wind in making entirely false announcements about partnerships with global banks. Today the corporation that runs it, Ripple Labs, and its top executives are being charged by the SEC for conducting an unregistered securities offering and the XRP token has been delisted from all American exchanges, leaving any Americans who held it in the unfortunate position of being forced to sell at prices 80%-90% down from its all-time highs against Bitcoin.

This data goes to show that it is very rare for any altcoin to make a new Bitcoin denominated all-time high in a second cycle. Most of them get pumped up initially and then their value drops precipitously against Bitcoin. Nearly all of the altcoin darlings of 2013 were completely unknown to market participants by the time the 2017 bull cycle came. They had been replaced by new altcoins with the same old promises of being a “better” cryptocurrency compared to Bitcoin.

2017-2021 Altcoin Darlings

The next bull cycle began in early 2017 and saw Bitcoin soar to $20,000 a coin. During that bull cycle, we also saw an explosion in the number of altcoins as Initial Coin Offerings (ICOs) became all the rage.

Altcoins became more popular than ever before during this cycle. Many marketed their tokens as improvements on Bitcoin’s perceived flaws like its scalability and functionality.

The altcoins of this cycle marketed themselves as better options than Bitcoin because they were “faster” and could allow for things like smart contracts and DAOs. These altcoins promised that they would revolutionize entire industries but in reality, a majority were either pump and dump schemes or centralized projects with inferior technology compared to Bitcoin.

Despite this, money flowed into these inferior technologies as speculators rushed in to profit from the rapid rise in the price of cryptocurrencies. What ensued was a massive speculative bubble that eventually popped in December 2017.

Let’s take a look at how the top 20 altcoins by market cap of 2017 have performed against Bitcoin since making a Bitcoin all-time high in the 2017 bull market.

This graph highlights how every single top 20 altcoin of 2017 has underperformed Bitcoin since making a Bitcoin all-time high in 2017.

Not one of these altcoins has made a new Bitcoin all-time high again since the speculative mania of 2017. This includes “blue-chip” altcoins like Ethereum.

Notice also how XRP failed to replicate its magic from the 2013-2017 bull cycle. XRP is down -82.9% against Bitcoin since making its Bitcoin all-time high in 2017. Although it was able to achieve a rare second Bitcoin all-time high from 2013 to 2017, it has woefully underperformed Bitcoin since then.

99% of these altcoins underperform Bitcoin from cycle to cycle, but there are always outliers in a given data set. After analyzing all the altcoins in the top 100 from 2017, I could only find two cryptocurrencies that went on to make another Bitcoin all-time high in the subsequent 2021 bull market: Dogecoin and Binance Coin.

Dogecoin became a meme in the spring of 2021 as celebrities, influencers, and entrepreneurs like Elon Musk and Mark Cuban began promoting Dogecoin to retail investors. As a result, the price of Dogecoin spiked against Bitcoin to an all-time high of 0.00001190 BTC in May 2021. Since its Bitcoin all-time high, Dogecoin has gone the way of most altcoins, it is currently down -77.1% against Bitcoin. Those retail investors would have been better off simply holding Bitcoin.

Binance Coin (BNB) was the other cryptocurrency to make a subsequent all-time high against Bitcoin from 2017 to 2021. BNB benefitted from the rapid adoption of the broader, centralized Binance Smart Chain ecosystem. Along with being the centralized token of one of the largest cryptocurrency exchanges in the world, this helped pump the price of the token to new Bitcoin all-time highs in 2021. Binance is now under investigation from the SEC for potentially BNB being an unregistered security.

Since making its Bitcoin all-time high in the spring of May 2021, BNB is down -15.2% against Bitcoin. Like XRP, we will see if Binance will be able to recreate the magic again in the next bull run or if it will end up aging like milk against Bitcoin like all of these other cryptocurrencies.

However, also like Ripple Labs, Binance now has to deal with an SEC investigation into its token. This did not pan out well for XRP investors, and we will see if it will end similarly for BNB holders or not. 

Once again, an overwhelming majority of the altcoins never broke all-time highs against Bitcoin again. Investors would have had to bet correctly on two altcoins out of thousands to outperform Bitcoin’s returns. They probably would have had better odds (and a better time) simply playing roulette in Las Vegas.

What’s Next for the 2021 Altcoin Darlings?

Similar to the one in 2017, when the 2020-2021 bull run came along, many of the popular 2017 altcoins were completely forgotten as new, trendy altcoins replaced them.

These altcoins went on to outperform Bitcoin in the short term as speculators and insiders pumped their prices up while selling promises and dreams of decentralized finance to retail investors. Due to their illiquid nature and smaller market caps, these altcoins serve as a beta to Bitcoin and typically outperform Bitcoin in the short term to the upside, and then underperform Bitcoin in the long term to the downside.

These altcoins can be thought of as the same broken, inferior technologies as the altcoins of 2013 and 2017, just with shiny new wrapping paper and new marketing buzzwords.

Instead of being sold on the dreams of ICOs and the Internet of Things as in 2017, retail investors were sold the dreams of DeFi and NFTs in 2021.

If history is any indication, nearly all of these altcoins that made an all-time high against Bitcoin in the 2021 price run-up, will never make a new Bitcoin all-time high again.

Due to the recent downward price action, we are already seeing signs of this altcoin death cycle playing out once more.

Here’s how the top 20 altcoins of 2021 are performing against Bitcoin since making their Bitcoin all-time highs in the midst of the recent bull cycle.

As you can see, these altcoins are following in the footsteps of the altcoins that came before them.

I expect, just like in previous altcoin cycles, that many of the altcoin darlings of 2021 will be completely forgotten about once the next Bitcoin bull cycle begins, never to surpass their Bitcoin all-time highs ever again.

One Hit Wonders vs an All-Time Classic Anthem

There are two major takeaways from this analysis:

1. Only Bitcoin has proven to have any kind of staying power when it comes to holding its 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.

Throughout Bitcoin’s history, there have been 3 bull cycles. In each bull cycle, centralized altcoins came along promising outsized investment returns and revolutions by marketing their token as a superior technology to Bitcoin. Many of these coins made Bitcoin all-time highs as they introduced their narrative to retail investors and benefited from the speculation and euphoria of the bull run. However, nearly all of these altcoins ended up being one-hit wonders. They never reclaim their glory from the past cycles and eventually fade into oblivion with nothing more than an old top 20 market cap to point to. 

Whereas all of these altcoins can be viewed as pretenders with one-hit wonders desperately trying to remain relevant, Bitcoin can be seen as an all-time classic. Only Bitcoin has managed to maintain its value over multiple cycles. It has held onto the top cryptocurrency spot by market capitalization for its entire existence. It does this because it is much more than just promises and marketing. It has fundamental properties that every other cryptocurrency lacks. These are what allow it to maintain its value over the long term.

If you are an altcoin investor reading this and you are having some doubts about your altcoin investment, don’t ignore that feeling, explore it. Given the data provided in this piece, it is likely that your doubts are well-founded, and it’s time you learned why Bitcoin has held its value while all of these other altcoins seem to fade away with time.

Don’t get stuck holding the bags of the one-hit wonders of each Bitcoin bull cycle, instead hold onto the asset that you know will be a top player in this cycle, the next cycle, and every single cycle to come.