Despite Bitcoin’s extremely strong performance in 2019, crypto assets as a class didn’t fare too well. Sure, some altcoins like Litecoin managed to surge by hundreds of percent. But, the aggregate market capitalization of cryptocurrencies that aren’t BTC managed to register a slightly negative performance last year, with altcoin projects in Ethereum and XRP actually falling.
This meant that those that abided by “diversification” strategies in the crypto space lost out. Big time.
But, as one Redditor’s crypto-viral experiment has shown, buyers are once again rushing to buy altcoins, allowing Ethereum, XRP, and a swath of other digital currencies to outperform BTC.
“Top 10 Crypto” Experiment Finally Goes Right, At Least For January
If you’ve been on the “cryptocurrency” Reddit at all, you likely know of a user going by “Joe-M-4.” Over the past few years, the user has embarked on a number of experiments, attempting to determine the validity of diversification strategies in the cryptocurrency market.
The experiments are centered around this strategy: at the start of each year, take $100 and put that sum into each of the top 10 crypto assets by market capitalization — from Bitcoin to Ethereum to XRP and onward — without rebalancing the fund, ever. As Joe wrote, it’s a “lazy man’s [crypto] Index Fund.”
Last year, the experiment proved altcoin investing in 2019 was hilariously sad, with the Redditor revealing that the fund ended the year up 1.7%, ‘rallying’ from $1,000 to $1,017 in a 12-month period.
Though, it seems that the experiment is faring better in 2020. Per an update published by the user this week for January 2020, the portfolio posted a 55% performance in January, meaning $1,000 was turned into $1,550 on paper. This outperformed the crypto market’s capitalization, up 36% in the same time period.
Notably, altcoins have been doing even better in February, though this update only covered the performance of the crypto portfolio in January 2020.
Altcoins Have a Harrowing Long-Term Outlook, Some Warn
While the positive results of the diversification experiment suggest altcoins may have a positive 2020, some fear that non-BTC crypto assets are going to have a tough time in the coming years.
Prominent cryptocurrency commentator and analyst Ceteris Paribus recently noted that the launch of the CME’s Bitcoin options could be bearish for altcoins: “If it isn’t obvious, the more we see products like this get offered the more bearish it is for the majority of alts,” they wrote.
They elaborated on this point by noting that “99% of crypto assets are basically quasi-derivatives of Bitcoin,” meaning that the introduction of actual, regulated derivatives for traders may lead to an erosion in the volume figures for altcoins.
https://twitter.com/ceterispar1bus/status/1216434327086456833
Also, Michael Novogratz — current CEO of “crypto merchant bank” Galaxy Digital and a former partner at Goldman Sachs — released aired a number of his concerns about altcoin investing in an extensive Twitter thread.
He argued that Ethereum, “like many other cryptos,” remains in a “proving phase” whereas it acts more like a “venture bet” because it does not yet have the capability of making a lasting impact on investing and the world as a whole. He thus said Bitcoin remains the crypto space’s best bet.
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