Altcoins are all cryptocurrencies other than Bitcoin. While Bitcoin is mainly used as a store of value, some of these altcoins have fascinating use cases.2021 was undoubtedly a massive bull run for the crypto markets. And you would be wrong to pass on the credit to the eminent Bitcoin – it was the ‘altcoins’ that took the lead. On the contrary, Bitcoin’s dominance in crypto assets shrank considerably in 2021. However, investors who understandably entered the altcoin markets with sky-high expectations seemed to have burnt their fingers since the beginning of 2022, with bears taking over the crypto markets.
Nevertheless, investors may want to look at investment opportunities even in these markets. Amidst fears of inflation and rate hikes, the escalating Russia-Ukraine conflict, and global risk-off sentiment, altcoins have been battered down from their all-time highs reached in 2021, while Bitcoin has performed better than most altcoins. In today’s article, we shall discuss underperforming altcoins.
Firstly, What Are Altcoins?
Simply put, altcoins are all cryptocurrencies other than Bitcoin. Some examples of altcoins are Ethereum, Solana, XRP (Ripple), etc. There are more than 3,000 altcoins. While Bitcoin is mainly used as a store of value, some of these altcoins have fascinating use cases. However, investors must tread safely while investing in altcoins. It’s challenging to stay away from altcoins that are scams simply because of the large number of such coins available in the market.
Bitcoin and Altcoin correlation
Despite the availability of numerous altcoins, Bitcoin still commands over half of the total crypto market cap. Due to this, Bitcoin enjoys a lot of influence over the prices of altcoins. It has been observed that the altcoin prices closely track the price of Bitcoin, the reasons being the following:
- The prices of most of these altcoins are measured in terms of Bitcoin and not fiat currency like dollars, pounds, etc.
- Most investors have to purchase Bitcoin first and then convert them to the altcoin of their choice because all altcoins cannot be purchased directly through fiat currency.
- Since altcoins are measured in crypto, their price will go up when the price of Bitcoin. Similarly, their price will reduce when the price of bitcoin goes down.
However, this equation may not always hold. The price of altcoins may pivot away from the price of Bitcoin. This happens when investors, with their research, may see more potential in an altcoin. Thus, they will pull out money from Bitcoin and invest in that altcoin, causing its price to rise and Bitcoin’s price to fall, and vice versa.
With this understanding, one way to think about the underperforming altcoins is to compare them to the first and most dominant cryptocurrency: Bitcoin.
In this analysis, we have restricted our analysis to the top 20 cryptocurrencies by market cap (as of March 9, 2022). The period under consideration is from the beginning of the year to March 9, 2022. Those altcoins that are found to have lower returns than Bitcoin can be classified as underperforming altcoins as per the framework of our analysis.
|Cryptocurrency||Price in ($) as on 1/1/2022||Price in ($) as on 9/3/2022||Absolute Return||Under/Outperformance over Bitcoin|
Data Source: Coingecko. Data as of 9/3/2022
As observed, 12 out of the top 20 altcoins have underperformed Bitcoin. The outperformers are Binance, Terra, XRP, and the stable coin – Tether, USD Coin, Binance USD, Terra USD, and Dai.
Holding into altcoins may have been very painful for investors over the past few months, especially because the story was very different if you would pull the time frame a little further behind. Functional altcoins – like the ones that provide an ecosystem or operating systems or those with value-accretive modes like staking or gas fees – may perform better in the long run. It is easier to have an anchor for the valuation of these functional altcoins.You can begin your crypto investment journey today. Start trading on Zebpay!