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

Various altcoins can bring in substantial gains over Bitcoin (BTC), especially during periods of increased popularity known as altcoin season. However, analysis by K33 Research shows that “pure bitcoin” investment strategies are more profitable than altcoin portfolios in the long run.

Altcoin portfolios underperform Bitcoin in the long run

Since 2013, Bitcoin has experienced three consecutive bull and bear market cycles, the most recent in 2021. In each cycle, the price of Bitcoin follows a parabolic rise in just a few months (often a few months) after surpassing the peak of the previous cycle.

In 2013, BTC peaked at around $1,175, followed by a downward trend for the next two years. At the time, the altcoin market was in its infancy. Fiat onramps to Bitcoin are limited, and there are few exchanges where investors can convert to altcoins.

However, by the end of 2015, a number of altcoins had emerged, including the launch of Ethereum and its native ether (ETH). A number of exchanges have also been established that support the conversion of Bitcoin into other cryptocurrencies, paving the way for the altcoin market.

There wasn’t a bull run in altcoins until April 2017, when Bitcoin’s price broke through its 2013 high. The initial coin offering boom on Ethereum and the retail investment hype around Ripple’s XRP (XRP) in the second half of 2017 led to an altcoin season, with many coins outperforming Bitcoin until January 2018.

However, after the bull run, altcoins generally lost more than Bitcoin, suggesting that the surge in altcoins was due to users buying altcoins during the Bitcoin bull run in hopes of higher returns.

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

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

K33 Research calculated how a $1 investment in each of 1,009 altcoins entered the CoinMarketCap top 100 by market cap since 2015 compared to the same amount invested in Bitcoin at the same time.

Today, an altcoin portfolio is worth about $7,000, compared to a pure bitcoin strategy of $50,000.

Altcoin vs Bitcoin performance since 2015. Source: K33 Research

Altcoins are often narrative driven, and many narratives die as the market evolves. For example, privacy-based coins were very popular in 2017, but many have dropped out of the top 100 due to regulatory scrutiny.

Likewise, many decentralized finance tokens that have hit the market in 2020 — such as Compound’s COMP (COMP) and THORChain’s RUNE (RUNE) — have dropped out of the market due to declining DeFi usage and the need to hold non-cryptocurrencies. Ranks among the top cryptocurrencies by market capitalization. Generate governance tokens.

Altcoins are also susceptible to volatility and unpredictable changes, with regulatory uncertainty hanging over most. They may experience their respective altcoin seasons at different times and the duration can vary greatly, requiring investors to have perfect timing to make profits.

Analysts at K33 found that more than two-thirds of the 1,009 top 100 altcoin projects have become inactive since 2015. Only 9.11% of these altcoins have generated positive returns, and only about 1.5% of them have returned more than 50 times the return of Bitcoin.

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

The report added that since 2015, altcoin investments have only turned a profit twice: once in 2017, when ether and XRP outperformed, and again in 2021, when a rally around Dogecoin (DOGE) and Shiba Inu ( SHIB) for hype.

It is worth noting that in the second half of 2021, when Bitcoin hit an all-time high of $69,000, with the exception of ETH, the gains of altcoins were relatively flat.

A Positive Breakout in Bitcoin Dominance

In addition to Bitcoin breaking out to new all-time highs, a breakout of key levels of Bitcoin dominance is another strong indicator that can help identify long-term trend reversals in altcoins.

The previous two cycles of altcoin season were marked by Bitcoin dominance breaking above 60%. The bottom in Bitcoin dominance also coincided with the top in total altcoin market capitalization following a bullish trend reversal.

Total cryptocurrency market capitalization excluding Bitcoin (top) and BTC dominance of the cryptocurrency market (bottom). Source: TradingView

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

Bitcoin dominance broke above the 50% level on June 19 as BlackRock filed for a Bitcoin ETF, opening up room for altcoins to fall further as it marks a key historical resistance points.

During the second half of the 2008-2022 bear market, Bitcoin dominance increased to over 70%. On the other hand, it has performed relatively well, with prices holding above 2018 lows around $3,250. K33 Research also shows that altcoins have significantly underperformed during this period and hit new lows towards the end of the year.

Related: Crypto Industry ‘Destined’ to Center Bitcoin Due to Regulators: Michael Saylor

The K33 Research analyst added that while altcoin portfolios show greater profit potential than Bitcoin, they need to “time the market or pick altcoin winners.” Anders Helseth, vice president of research at K33 Research, told Cointelegraph:

“You can generate higher returns by trading sentiment more aggressively, but that requires a lot of focus and is obviously more risky.”

Given that Bitcoin has outperformed altcoins over the long run, dollar cost averaging (DCAing) Bitcoin could be an effective investment strategy for cryptocurrency investors.

DCA means investing a fixed amount of money in a specific asset at regular intervals over a specific period, regardless of the investment price, averaging out the principal and eliminating the need for market timing. Helseth told Cointelegraph that DCAing is “a smart, fairly safe, simple cryptocurrency investing strategy.”