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

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

Various altcoins can post handsome gains that surpass those of Bitcoin (BTC), particularly during times of increased popularity, known as altcoin seasons. However, analysis from K33 Research shows that over the long term, a “Bitcoin-only” investment strategy has been more profitable than an altcoin portfolio.

Altcoin portfolio underperformed Bitcoin over the long run

Bitcoin has had three consecutive bull and bear market cycles since 2013, with the latest coming in 2021. In each cycle, Bitcoin’s price rose parabolically in a concise span, usually a few months, after surpassing the peak of its previous cycle.

In 2013, BTC peaked at around $1,175, followed by a downtrend for two years. At the time, the altcoin market was in its nascent stage. The fiat on-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 native Ether (ETH) coin. A few exchanges had also been formed that supported the conversion of Bitcoin to other cryptocurrencies, paving the way for an altcoin market.

It was not until April 2017, when Bitcoin’s price broke above its 2013 top, that a bullish run occurred among altcoins. During the second half of 2017, the initial coin offering boom on Ethereum and retail investment hype around Ripple’s XRP (XRP) led to an altcoin season, with many tokens outperforming Bitcoin until January 2018.

Nevertheless, in the aftermath of the bull market, altcoins generally suffered greater losses than Bitcoin, suggesting the surge resulted from users buying them during Bitcoin bull markets with the hope of capturing higher returns.

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

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

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

Altcoins are usually narrative-driven, and many narratives die with the evolution of the market. For instance, 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 dropped out of the top cryptocurrencies by market cap due to declining DeFi usage and demand for holding non-yielding governance tokens.

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

K33’s analysts found that since 2015, over two-thirds of the 1,009 altcoin projects that managed to creep into the top 100 have become inactive. Only 9.11% of these altcoins yielded positive returns, with only around 1.5% outpacing Bitcoin’s 50x returns.

The report adds that altcoin investments were only profitable two times since 2015: in 2017, when Ether and XRP were outperforming, and in 2021, during the hype surrounding Dogecoin (DOGE) and Shiba Inu (SHIB).

Notably, during the second half of 2021, when Bitcoin made new all-time highs at $69,000, altcoins posted relatively dull gains, with the exception of ETH.

Positive breakout in Bitcoin’s dominance

Besides a breakout in Bitcoin’s all-time high, breakouts from crucial levels in Bitcoin’s dominance levels are another potent 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 the total market capitalization of altcoins.

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

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

In the latter half of the 2008–2022 bear market, Bitcoin’s dominance increased to over 70%. On the other hand, it performed relatively better, holding its price above the 2018 lows of around $3,250. K33 Research also shows that this period marked significantly poor altcoin performances, making new lows toward the end.

Related: Crypto industry ‘destined’ to be BTC-focused due to regulators: Michael Saylor

The K33 Research analysts added that while altcoin portfolios have shown the potential for greater profits than Bitcoin, they require “timing the market or picking the altcoin winners.” Anders Helseth, vice president of research at K33 Research, told Cointelegraph:

“You can create higher returns by trading market sentiment more aggressively, but it requires a lot of attention, and it is obviously more risky.”

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

To DCA means to regularly invest a fixed amount of money into a particular asset over a specific period, regardless of the investment’s price, to average the principal amount and remove the need to time the markets. Helseth told Cointelegraph that DCAing is “a sensible, quite safe, simple crypto investment strategy.”

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

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