Decoding Crypto Returns: Bluechips vs. The Rest

Do you consider yourself a casual crypto investor sticking to bitcoin and Ether as your crypto bags? Or do you like taking your shot at the next 1000x crypto coin? Look at history to see which investing strategy might be the best.

This article is just for education and does not represent any financial advice.

First, if you can't outperform the blue chips, then you are losing, and common sense tells us that we shouldn't seek returns but risk-adjusted returns. This means that for each additional unit of risk you take (such as buying an altcoin), you should expect an additional return over safer assets. In other words, if you're going to invest in anything other than ether and bitcoin it better offer superior returns, or else what's the point?

The problem is that most crypto projects simply won't outperform the blue chips.

Let's look at 2019 as it has relatively similar market conditions to today. It was a bear market, a pre-halving year, a pre-election year for the US. Bitcoin traded at just over $8k, and Ether was under $200. Tether was at $4B in supply, and forks BDH and BSV still occupied the top 10 spots.

Look at this chart, which shows what projects in 2019 outperformed ETH. They are shown above the red line.

In total, just 15 out of the top 200 assets in 2019 performed better than Ether, showing how strong survivorship bias has become in the crypto market. Notice how the dots become sparse as you move up in market cap. Lots of small projects die. Of the 200 projects in this 2019 snapshot, 63% were no longer in the top 200 in November of 2021,

As you can see in the chart below, only four of them are in the top 15 today. Crypto has no mercy for weak projects.

So, if you find your needle in a haystack, ask yourself how many of even the top 50 projects today will be around a decade from now. Only bitcoin and Ether have proven their robustness over multiple cycles with increasing users and volume year after year. The list of "low" risk investments simply doesn't exist today.

Do you like getting in the weeds and finding these rare gems? It requires due diligence and a bit of luck, but I wonder if sticking to the big guys might be a better bet.

If you go gem hunting, look into the project's team and if they have been delivering on their roadmap. Are their key performance indicators trending in the right direction, and are they on the path to achieving an excellent product-to-market fit?

Whatever investing path you take, remember not to fall in love with your altcoin bags, and when in doubt, stick to the majors.

Until Next Time,

J.Scott