‘Bitcoin-only’ buy-and-hold investing outperforms altcoins over the long term, analysis shows

Altcoins offer diverse, innovative features, promising technological advances and potentially lucrative investment opportunities.

Several altcoins can generate handsome profits that surpass those of Bitcoin (BTC), especially during times of increased popularity, known as altcoin seasons. However, analysis from K33 Research shows that in the long run, a “Bitcoin-only” investment strategy has been more profitable than an altcoin portfolio.

Altcoin portfolio underperformed Bitcoin in the long run

Bitcoin has had three consecutive bull and bear market cycles since 2013, with the last in 2021. In each cycle, Bitcoin’s price rose parabolically in a short span of time, usually a few months, after crossing the previous cycle’s peak.

In 2013, BTC peaked at around $1,175, followed by a two-year downward trend. At that time, the altcoin market was still in its infancy. The fiat ramps to Bitcoin were limited and exchanges on which investors could convert to altcoins were rare.

However, by the end of 2015, a number of altcoins had arrived, including the launch of Ethereum and its own Ether (ETH) coin. Some exchanges had also been formed supporting the conversion of Bitcoin to other cryptocurrencies, paving the way for an altcoin market.

It wasn’t until April 2017, when Bitcoin’s price broke above its 2013 high, that a bullish run took place among altcoins. During the second half of 2017, the initial boom in coin offerings on Ethereum and the retail investment hype surrounding Ripple’s XRP (XRP) led to an altcoin season, with many tokens outperforming Bitcoin through January 2018.

Nevertheless, in the aftermath of the bull market, altcoins generally suffered larger losses than Bitcoin, suggesting that the increase was due to users buying them during Bitcoin bull markets in hopes of earning higher returns.

The chart below shows that Bitcoin found support around $6,500 during the bear market from 2018 to 2019 after recovering from lows of $3,250 in late 2018. However, the total market cap of altcoins continued to hover around the lows throughout most of the bear market, which the trend only reversed after Bitcoin broke above its previous peak of $20,000.

Bitcoin price (top) and altcoin market cap (bottom). Source: TradingView

K33 Research calculated the performance of investing $1 each in 1,009 altcoins since 2015 when they entered the top 100 by market cap on CoinMarketCap versus the same amount invested in Bitcoin at the same time.

The altcoin portfolio would be worth about $7,000 today, compared to $50,000 from the Bitcoin-only strategy.

Performance of Altcoins vs. Bitcoin since 2015. Source: K33 Research

Altcoins are mostly narrative and many stories die with the evolution of the market. For example, privacy-based tokens were quite popular in 2017, but many have dropped out of the top 100 due to regulatory scrutiny.

Similarly, many of the decentralized finance tokens that populated the market in 2020 — such as Compound’s COMP (COMP) and THORChain’s RUNE (RUNE) — have fallen from the top of cryptocurrencies by market cap due to declining DeFi usage and demand for holdings not – yield control tokens.

Altcoins are also subject to volatility and unpredictable shifts, with regulatory uncertainty. They can experience their individual altcoin seasons at different times, and the duration can vary significantly, requiring investors to have perfect timing to make a profit.

K33 analysts found that since 2015, more than two-thirds of the 1,009 altcoin projects that managed to creep into the top 100 have gone dormant. Only 9.11% of these altcoins returned positive returns, with only about 1.5% surpassing Bitcoin’s 50x return.

Performance of 1,009 altcoins that entered the top 100 since 2015. Source: K33 Research

The report adds that altcoin investments have only been profitable twice since 2015: in 2017, when Ether and XRP outperformed, and in 2021, during the hype surrounding Dogecoin (DOGE) and Shiba Inu (SHIB).

Particularly in the second half of 2021, when Bitcoin hit new all-time highs at $69,000, altcoins posted relatively uneventful gains, with the exception of ETH.

Positive breakthrough in Bitcoin dominance

In addition to a break in Bitcoin’s all-time high, breakouts from crucial levels in Bitcoin’s dominance levels are another powerful indicator that helps identify long-term trend reversals in altcoins.

Altcoin seasons during the previous two cycles were marked by Bitcoin’s dominance breaking below 60%. After the bullish trend reversal, the bottom in Bitcoin’s dominance also coincided with the top in altcoins’ total market capitalization.

The total market cap of crypto excluding Bitcoin (above) and BTC’s dominance over the crypto market (below). Source: TradingView

If history repeats itself, Bitcoin’s dominance could rise further, while altcoin’s performance remains subdued.

A break in Bitcoin’s dominance above the 50% level on June 19 — thanks to BlackRock’s application for a Bitcoin exchange-traded fund — has opened room for further altcoin losses as it marked a critical historical resistance point.

In the second half of the 2008-2022 bear market, Bitcoin’s dominance increased to over 70%. On the other hand, it outperformed relatively, holding its price above 2018 lows of around $3,250. Research from K33 also shows that this period marked significantly poor altcoin performance, creating new lows towards the end.

Related: Crypto Industry ‘Destined’ To Target BTC Due To Regulators: Michael Saylor

The K33 Research analysts added that while altcoin portfolios have shown the potential for bigger gains than Bitcoin, they must “time the market or pick the altcoin winners.” Anders Helseth, vice president of research at K33 Research, told Cointelegraph:

“You can get higher returns by trading more aggressively on market sentiment, but it requires a lot of attention and it’s obviously riskier.”

Since Bitcoin has outperformed altcoins in the long run, dollar-cost averaging (DCAing) in Bitcoin can be an effective investment strategy for crypto investors.

For DCA, regular means investing a fixed amount in a particular asset over a period of time, regardless of the price of the investment, to average the principal and remove the need to time the markets. Helseth told Cointelegraph that DCAing is “a sensible, fairly safe, simple crypto investment strategy.”

This article does not contain any investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.

This article is for general information purposes and is not intended to and should not be construed as legal or investment advice. The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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