Diversified Crypto Portfolios: Altcoin Performance in Bitcoin Bull Markets
Altcoin returns tend to increase as Bitcoin bull markets mature. Bitcoin has entered a bull market in early 2020 – Investors should now read the trend and diversify their portfolios.
When institutional investors invest in crypto assets, they usually buy Bitcoin. According to a study by Fidelity, 25 percent of all the surveyed institutions hold Bitcoin in their portfolios, 11 percent invest in Ether, but other crypto-assets hardly play a role in institutional portfolios.
But crypto is much more than just Bitcoin. Investments in other crypto-assets, so-called “Altcoins,” are usually riskier because they have higher volatility and lower liquidity. The higher risk, however, comes with higher returns. While Bitcoin has yielded about 34% since January 2020, Ethereum has gained 88%, and other Altcoins such as REP or ZRX have generated almost 100% return over the same period.
Altcoin returns increase as Bitcoin bull markets mature
Changes in Bitcoin prices have a significant impact on Altcoin prices, often with a time lag. That’s because new investors tend to buy Bitcoin first and invest in Altcoins as the next step.
Stock markets show similar correlation patterns. Investors who buy shares for the first time often invest in blue chips such as Amazon or Facebook first and then, after initial investment successes, buy more speculative small-cap stocks.
Since Altcoin demand lags behind Bitcoin demand, Altcoin performance tends to increase as Bitcoin bull markets mature. During the Bitcoin bull market in 2016 and 2017, Altcoins massively gained in value towards the end of the Bitcoin boom in late 2017.
From January to December 2016, Bitcoin’s share of the total crypto market capitalization decreased from 91% to 87%. Towards the end of 2017, shortly before the end of the bull market, Bitcoin’s share was only 38%. The value of the Altcoin market has increased massively, especially throughout the second half of the Bitcoin bull market.
Altcoins outperformed Bitcoin in 2020
Bitcoin has entered a bull market in early 2020 and has gained 34 % in value since the beginning of the year. During the same period, the biggest Altcoins have outperformed Bitcoin.
Bitcoin’s share of the total crypto market capitalization is currently at around 65%. If the Bitcoin bull market continues, the performance spread between Bitcoin and the leading Altcoins will likely increase. In other words: A diversified crypto portfolio has a good chance of outperforming Bitcoin in the next months.