The following is a guest post from Shane Neagle, Editor-in-Chief of The Tokenist.
With the US presidential election over, Bitcoin has been hitting new highs almost every week throughout November. On November 22, Bitcoin reached the nearly $100,000 mark, reinvigorating the altcoin market and now $1.49 trillion Market capitalization.
Conventional wisdom suggests that altcoins will follow Bitcoin's lead, as trends have shown. But what types of altcoins will perform strongly? More importantly, are there new fundamentals to consider this time?
First, let's look back at the relationship between Bitcoin and altcoins. It's more important than people think.
Why does Bitcoin lead the virtual currency market?
It took almost nine years from the launch of the Bitcoin mainnet in January 2009 until the Bitcoin price broke the $10,000 threshold in November 2017. Although Bitcoin gradually gained popularity, it remained a novel and highly speculative asset. This is understandable in a central banking system. In the central banking system, money is synonymous with government edicts, i.e. fiat (legal) money.
Therefore, believing in government edicts and the government's use of force gives money value. This is common knowledge that has been practiced for generations. Additionally, there is the issue of media. How can you trust Bitcoin if it is digital and not a physical paper token issued by a central bank?
Blockchain enthusiasts already know the answer. The central bank, the Federal Reserve, also relies on electronic ledgers, allowing its accounting to be manifested in physical tokens (bills). but not necessarily. In contrast, the whole point of Bitcoin's ledger is that its accounting is hardened against arbitrary dilution.
This makes Bitcoin pseudo-digital. That accounting is enforced by computing power through proof-of-work algorithms that build a bridge between the digital and the physical. The physical ones are the energy and hardware assets required for computing power. As a result, Bitcoin determines the altcoin market.
The sound money aspects of Bitcoin, the first cryptocurrency, are easy to understand. Bitcoin network calculation ability As it grows, holders become more confident in the inviolability of Bitcoin's accounting (distributed ledger). When a new altcoin emerges, it trades against Bitcoin, a market benchmark tied to energy and hardware physicality. In times of uncertainty in altcoin valuations, holders return to Bitcoin as a safer asset. Similarly, when the price of Bitcoin increases, it trickles down to smaller assets for holders. Put a cap on altcoins because the profit potential is greater. After all, it is more difficult to move the large market weight that Bitcoin holds.
Conversely, Bitcoin's large market capitalization acts as a psychological cushion, making it ready to absorb fleeing altcoin funds in times of distress. However, in highly stressful situations, that capital can flee from Bitcoin itself.
The problem is that if enough altcoin funds are outflowed, the entire cryptocurrency market will fall. This is because many people view Bitcoin as just another virtual currency, even though it has a first-mover advantage.
Altcoin and Bitcoin pullbacks
The relationship between the Federal Reserve and the cryptocurrency market is essential. When a central bank increases its balance sheet by excess, 6 trillion dollarsfrom 2020 to 2022, liquidity bloat spilled over into crypto assets, prompting traders to explore popular trading strategies to maximize their opportunities.
Previously, cryptocurrency liquidity surged during the Initial Coin Offering (ICO) era and peaked from 2017 to 2018. This era produced the top-class altcoins of the time. Ethereum (ETH), Cardano (ADA), EOS (EOS), Tezos (XTZ), Stellar (XLM), Algorand (ALGO), Neo (NEO), Filecoin (FIL), Tron (TRX), Chainlink ( LINK), and many others.
However, all liquidity is limited. Due to the expansion of the altcoin market, Bitcoin has lost its market capitalization advantage. Traders often rely on trading room During these important shifts, we share strategies and insights to effectively navigate market shifts.
The ICO boom has spawned dozens of altcoins, but it's also true that: most were scams Or die in the water. As a result, Bitcoin regained lost ground until the Fed's unprecedented financial intervention amidst the pandemic saga.
After the Fed printed more money, Bitcoin's dominance further shrunk. The altcoin market suffered an estimated $60 billion in losses following the collapse of the overleveraged Terra (LUNA) associated with the algorithmic stablecoin TerraUSD.
However, the speculative motive remained as the top altcoins were already outperforming Bitcoin due to their lower market capitalization and higher profit potential. This further reduced Bitcoin's dominance, but it was only temporary.
In a classic domino scenario, the liquidity threshold pulled by the Fed by the end of 2022 ultimately caused the collapse of overleveraged FTX exchanges, sending shock waves throughout the crypto market. Bitcoin was caught in a crash panic, dropping to its pre-2020 price level of $16,500.
Nevertheless, Bitcoin has begun to recover amidst big question marks hanging over the entire crypto market. US regional banking crisis in spring 2023; helped with the incident About Bitcoin fundamentals. Bitcoin ETF approval and fourth halving in early 2024 further set the stage for recent all-time highs.
But how has the altcoin market evolved alongside Bitcoin?
The superiority of meme coins speaks for itself
Most of the “legacy” altcoins focused on blockchain infrastructure, decentralized finance (DeFi), and other efforts to tokenize human activity through smart contracts. However, the extinction of cryptocurrencies during 2022 seems to have left psychological scars.
The lofty stories of the previous cycle have largely been replaced by hyperbolic gambling through meme coins. According to Artemis data, meme coins are dominating the crypto market, with only AI tokens outperforming them in early 2024.
By mid-November, Meme coin returned 6x value Higher than the virtual currency market average.
This coincides with Donald Trump securing a second term in the Oval Office. This shows that crypto holders are becoming accustomed to community-centered, social media-driven hype cycles rather than altcoin fundamentals.
Similarly, the AI revolution is still going strong. Other than various “ChatGPT with makeup” software and providers Providing hosted GPU serversAI crypto is also a hot topic, with the release of the long-awaited AI agent expected to start another bullish period.
Kaito AI, a market insights platform, determined that one in four crypto investors prioritize meme coin discussions. In other words, the focus is on short-term gains rather than long-term value gains. This is suitable for more dynamic traders who study cryptocurrency trends on a daily basis.
Narratively, altcoin categories such as memes, real world assets (RWA), prediction markets, PolitiFi, AI, Solana, and smart contract platforms have outperformed Bitcoin since the beginning of the year.
In total, 15,713 Track cryptocurrencies in circulation across 1,178 exchanges and 494 categories. Such a huge amount of digital assets across so many categories creates a daunting mental workload to sort the wheat from the chaff.
Conversely, the popularity of meme coins is one of the manifestations of coping with that mental burden. After all, its simplicity and virality are themselves filtering mechanisms. But another manifestation of the response is a return to “old guard” altcoins.
Old altcoins return to a friendlier scene
The cryptocurrency price crash in 2022 was so severe that it became pointless to sell altcoins at such a depressed price. As a result, it is no exaggeration to say that many losses did not materialize and we were waiting for a new bull market.
Bitcoin's recent bull run appears to be causing that cycle. At the end of August, CryptoQuant's Joan Wesson observed that the altcoin market was once again aligning with Bitcoin.
During the previous cycle, at the peak of the bull run in November 2021, 11 altcoins remained in the top 20 altcoins (excluding stablecoins). While most of those prices are still far from their previous highs, they have the potential to regain ground, assuming this is just the beginning of a new bull market.
This could be the case if more exchange-traded funds (ETFs) are approved, which fueled Bitcoin's rally and rally earlier this year. As a good example, NYSE Arca recently filed For Bitwise 10 Crypto Index Fund, it includes the following coins:
Portfolio Asset Symbol Weight Bitcoin BTC75.10% Ethereum ETH16.50% Solana SOL4.30% XRPXRP1.50% Cardano ADA0.70% Avalanche AVAX0.60% Chainlink LINK0.40% Bitcoin Cash BCH0.40% Polkadot DOT0 .30% Uniswap UNI0.30%
Interestingly, Bitcoin's weight in the index is much larger than its current dominance. Once again, this shows the dilution problem of cryptocurrencies. Even though altcoins are much cheaper, there are so many of them that it is difficult to measure their long-term fair value.
Similarly, its scarcity is not guaranteed. As projects become more centralized, inflation rates may change. For example, Solana's current SOL token inflation rate is: 4.886% On the other hand, long-term proposals 1.5%.
Nevertheless, with the departure of the anti-cryptocurrency SEC chairman and the inauguration of the supposedly crypto-friendly Trump administration, the cryptocurrency market is likely to deepen its liquidity pool further. Furthermore, recent judgments Sanctions against Tornado Cash were illegal It can have far-reaching effects.
The court effectively recognized that dApps are a new type of asset and lack the ownership rights recognized as smart contract code. In other words, the court has restored common sense that open source cannot be property.
conclusion
Even with historic increases in the money supply, liquidity is finite. Bitcoin was able to provide liquidity for most cryptocurrencies because it promoted a completely different view of money. This monetary potential has given rise to countless altcoins and expanded the utility of smart contracts.
However, instead of expanding, the cryptocurrency market shrank due to massive fraud and excessive leverage, and Bitcoin fell along with it. With a cleaner market and a more bullish regulatory environment, Bitcoin is now poised to spark a new altcoin bull market.
While the number of altcoins became mind-boggling, the first generation of altcoins resurfaced and sought to lock in value with established familiarity.
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