Altcoins vs. Bluechips — A Lesson in Risk and Opportunity Cost
It’s the telltale sign of the bull market heating up — my friends are asking me what crypto to buy. My answer is always the same… stick to the bluechips, Bitcoin and Ethereum. While normies will generally value their investments in USD terms, crypto natives often value their portfolio in BTC and ETH because it represents the opportunity cost of those assets vs the rest of the crypto space. To illustrate this, we’ll first take a look at the market cycle top of 2013 to compare how each coin in the top 12 has fared since then versus Bitcoin.
What do we notice at first glance? Bitcoin was number one back then and is still number one today. Litecoin and XRP are still around and have no doubt been shilled to you before, but what about the rest? You’ve probably never even heard of them, and for good reason… because they’re what’s known to crypto folk as Shitcoins. The reality of the crypto space is that in the long run, the valuation of nearly every Altcoin will follow one of two paths:
- Not survive a bear market.
- Survive a bear market, but lose value against Bitcoin and Ethereum
Let’s take a look at how the coins that fell into path number 1 are doing today along with their returns on investment since the 2013 top— Prices as of 11/30/21.
Peercoin — Market Rank #869, trading for $0.8761, -86.2% ROI
Namecoin — Market Rank #816, trading for $1.91, -77.32% ROI
Quark — Market Rank #1640, trading for $0.0079, -96.00% ROI
Megacoin — Market Rank #2294, trading for $0.0056, -99.34% ROI
BitShares — Market Rank #408, trading for $0.0469, -99.80% ROI
Feathercoin — Market Rank #1456, trading for $0.0162, -97.96% ROI
Primecoin — Market Rank #1554, trading for $0.0735, -98.74% ROI
WoldCoin — Market Rank #5893, trading for $0.0470, -89.80% ROI
Freicoin — Market Rank #2034, trading for $0.0112, -96.87% ROI
Bitcoin — Market Rank #1, trading for $56,107.34, +5769.89% ROI
Of these 10 coins, only Bitcoin has survived a bear market to put in a higher all time price than the previous market cycle top. When thinking about risk in crypto, you not only have to think about what these assets could do in the short term, but you have to ask yourself if an asset will even be relevant by the next market cycle.
Examples of path number 2 from the 2013 cycle top would be Litecoin and XRP. Both assets have survived bear markets to still be relevant today and both assets have increased their USD valuation since then, but both assets have lost value against Bitcoin.
Litecoin is up 507.57% since the high of 2013 and XRP is up an astounding 1920.00%, so how exactly could they be bad investments? The answer is simple… Bitcoin has outperformed them. The opportunity cost of buying LTC and XRP is that you didn’t buy BTC, an asset that is up 5769.89% compared to 507% and 1920%.
Not only did every coin from the 2013 market cycle top lose value against Bitcoin, only two out of the 11 gained value against the US dollar.
Now let’s take at look at the 2018 top for Ethereum vs Altcoins next.
Since 2018, Ethereum is up 243.07% trading at ~$4650. More importantly, it is still ranked second out of all crypto assets in terms of market cap. Excluding Bitcoin and ETH, the only other assets from the snapshot above that are still in the top 12 today are XRP and Cardano, meaning everything else has fallen into either of the two paths I mentioned earlier. Since Ethereum has clearly outperformed the other Altcoins, let’s take a quick look at it’s valuation vs XRP and Cardano.
The chart above is XRP’s valuation against ETH. If you’re unfamiliar with valuing two assets against each other, just imagine that this is a snapshot of your brokerage account or your 401K. If either of those accounts looked like this chart, it would mean your stocks are trending down against the USD for three years straight now. But in this case, it’s XRP going down against ETH with virtually no end in sight.
Above is the Cardano to Ethereum ratio. While Cardano is still down from it’s 2018 all time high vs. ETH, it at least shows some signs of strength at different phases of the current market cycle. Where Cardano goes from here is anyone’s guess, but since it has consistently bled against Ethereum so far in Q4 of 2021, it has a ton of work to do to reach it’s 2018 high.
If you’re keeping score at home, not a single asset in the top 12 of the 2013 and 2018 market cycle tops has been able to keep pace with Bitcoin and Ethereum. So why does this happen? Because crypto bull markets are driven by wild speculation and narratives, not necessarily fundamentals. In a bull market, everything goes up and everyone feels like a genius trader. It isn’t until the bear markets that the shitcoins get found out and proceed to endlessly bleed against BTC and ETH. Keep this in mind when you’re looking at coins getting shilled to you on Twitter or in advertisements, the chances are you’ll just become someone’s exit liquidity.
Don’t get me wrong, if you live and breathe crypto and stay up to the date within the space, there is plenty of opportunity to trade and profit off of these narratives. But if history is any indication, sticking to the bluechips will likely yield you the best results.
WAGMI,
Will
Disclaimer — None of my work should be taken as financial advice.
Disclosures — I hold positions in ETH, BTC, MATIC, AVAX, DOT, and ADA.
