The year 2023 witnessed a remarkable surge in the price of Bitcoin BTCUSD, -1.83%, the world’s largest cryptocurrency by market capitalization. Its value skyrocketed by over 150%, outperforming smaller coins in the market. However, according to analysts at Pantera Capital, this trend might soon be reversed.
The Phases of Crypto Bull Cycles
Pantera’s portfolio manager of liquid strategies, Cosmo Jiang, and head of content, Erik Lowe, have identified two distinct phases in crypto bull cycles. In the early stage, Bitcoin tends to outshine other crypto assets, owing to its broad availability and high liquidity. It serves as the go-to choice for first-time investors, who gradually seek exposure to other coins as they become more familiar with the market.
In 2023, Bitcoin boasted a daily trading volume averaging $18 billion, while Ether stood at $8 billion, as reported by the Pantera analysts.
The Rise of Altcoins
However, as the crypto rally continues, investors may start searching for tokens that offer higher growth potential. The analysts observed this trend in the past when “altcoins” gained prominence in the market. Altcoins refer to cryptocurrencies other than Bitcoin and encompass various categories such as decentralized finance and nonfungible tokens (NFTs). These altcoins experienced significant growth in 2020 and 2021, outperforming Bitcoin throughout those periods.
Looking back at the previous two crypto bull cycles since 2015, altcoins performed so well in the second phase that they outshone Bitcoin entirely. This suggests that smaller cryptocurrencies could potentially seize the spotlight in the late stages of a bull market.
Volatility and Risks
It is important to note that cryptocurrencies remain highly volatile in the nascent market that emerged in 2009. Smaller cryptocurrencies often carry even greater risks than Bitcoin, and caution should be exercised. The crypto market witnessed the collapse of multiple projects in 2022, coinciding with the Federal Reserve’s decision to raise interest rates from their near-zero levels.
The Feasible Way to Generate Alpha in the Crypto Space
The team at Pantera believes that maintaining consistent exposure and investing in altcoins with strong fundamental reasons for appreciation can be the most feasible way to generate alpha in the cryptocurrency space. They argue that altcoins with protocols that have product market fit and generate real revenues with strong unit economics will outperform bitcoin in the coming cycle, similar to how other asset classes like equities perform. This emphasizes the importance of token selection for investors.
VanEck to Liquidate Bitcoin Futures ETF
In a recent announcement, VanEck stated that it will be shutting down its bitcoin futures exchange-traded fund by the end of this month. The firm anticipates a shift in investor appetite towards newly approved funds that directly invest in the cryptocurrency. Shareholders of the VanEck Bitcoin Strategy ETF (XBTF) have until January 30 to sell their shares before the market closes and the ETF gets delisted.
VanEck made this decision after launching a spot bitcoin ETF (HODL) last week, in line with other asset managers, following the Securities and Exchange Commission’s approval of spot bitcoin ETFs on January 10. Kyle DaCruz, Director of Digital Assets Product at VanEck, believes that investors will prefer products offering direct bitcoin exposure as they closely track the price of bitcoin without incurring the costs associated with rolling futures contracts.
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Crypto in a Snap
In the past seven days, bitcoin has experienced a 7.3% decrease in value, while ether has seen a 2.5% gain, according to CoinDesk data.