When Alt Season?
Will New Projects Capture All the Value?
The cryptocurrency investment world has little in the way of historical reference, and most projects are too young to look at stock valuation metrics like Price/Earnings ratios. Most cryptocurrency investments are in the pre-growth or early growth phase. Most of the associated projects are still looking for product/market fit.
Lacking real valuation metrics, cryptocurrency projects tend to be valued relative to each other, rather than relative to each project’s individual merits. That leads to an unusually high degree of correlation in market valuations, based more on observed cryptocurrency market cycles than worthiness of any particular asset.
One of those observed cycle phases has been branded “alt season”, which is the term used to describe how BTC is valued relative to all the other cryptoassets. As you can see from this chart, there have been two major surges in altcoin dominance, both seem to be centered around the 10x run-up in Bitcoin value during the 2017 bull market.
During 2017, many multi-million dollar Initial Coin Offerings¹ (ICO) launched, exciting investor speculation in the cryptocurrency space.
During these times, Bitcoin dominance was waning and altcoins surged pretty much in unison. One or two alts would announce big news, and the ensuing excitement seemed to spill over into other alts.
But now, with the BTC market feeling bullish, and people getting excited for the next 10x climb (we’re currently up 3x since February), altcoin holders get excited every time the BTC price softens, wondering if it’s their turn to see their altcoin holdings moon² like they did in 2017 and early 2018.
Nathaniel Whittemore, an excellent crypto-news curator and host of a daily video podcast on crypto asked on Twitter:
“Even if you think that there will be another alt season, why would you think it would be an old vintage of (often besmirched) post-ICOs, versus some new class of projects with a clean slate to capture whatever the narrative is at the moment?”
My interpretation of this is that Nathaniel is (rightfully) skeptical of the alt season narrative. Is there any good reason for crypto projects with nothing in common except a cryptocurrency token to rise and fall together? But the question doesn’t address that flaw in the alt season narrative directly. Instead, it points out an interesting historical fact.
Look at the top 20 alts from 5 years ago, and compare them to the top 20 alts today, and you’ll find those lists have changed quite a bit. Many of the top 20 from 2014 have stopped development efforts, and retain value only as speculative instruments being passed on to a greater fool.
70% of the top 20 from 2014 are no longer in the top 20 today. Part of the reason is that competition rapidly exploded during 2017.
Another reason is that a large number of projects ran out of funding and ceased development during the 2018 bear market.
Judging by this data, Nathaniel makes a very salient point.
But another thing you’ll find is that a small number held on, and some of them gained strength. Make no mistake, BTC won’t hold 70% dominance forever. There will be another surge in new project funding. There will be massive gains as some of the existing projects find traction. The cycle will repeat itself. But that doesn’t mean that everybody holding old bags of altcoins will be rich again.
Just like the 2014 batch, a fair number of the 2017 batch are gone for good. They’re not coming back.
To directly answer the question of why I’m still cheering for the survivors of the pre-2018 bear market batch, allow me to reintroduce a few of them.
Some crypto projects have been building for years, have live products, real traction, and proved themselves by surviving the bear market. They’re much lower risk than brand new alts.
Here are some of my favorite stand-outs:
- Cardano has a high volume/transaction ratio. It’s built by some of the best minds in computer science. The Plutus smart contract language simplifies reasoning about and brings much needed safety to smart contract programming. Up 13% over 6 months.
- Theta is a live video streaming network founded by a co-founder and ex-CTO of YouTube. It’s already integrated with Sliver.tv for live esports streaming, with 6 million users. Up 25% over 6 months.
- BAT is the native token of the Brave browser, founded by Brendan Eich, inventor of JavaScript and founder of Mozilla (Firefox). You can earn BAT while browsing and use it to tip web creators. It already has more than 5 million MAU (as of a few months ago, higher now). Up 33% over 6 months.
- Ethereum is the smart contract platform that started the smart contract revolution and kicked off the ICO craze of 2017 by providing the ERC-20 token standard. Want to make a token that already works in most wallets? Build it on ERC-20. It’s also home to the most used DeFi primitives in the crypto world. Up 37% over 6 months.
- BNB is the exchange token of Binance, the world’s highest volume crypto exchange. BNB gives holders discounts on exchange fees and is the native token of the chain that powers Binance DEX. Up 198% over 6 months.
By way of comparison, Bitcoin is currently up 162% over 6 months. The trend is strongly in favor of continued Bitcoin dominance in the short-term, but mark my words: We haven’t heard the last of the alts. Trillions of dollars in assets will find their way into the cryptocurrency market over the next several years.
Cryptocurrencies are not just about how people spend money. They’re about how we represent and transact anything of value, including stocks, computing resources, real estate, and all manner of financial instruments, like loans and insurance. Bitcoin is not the ideal way to represent all of those things.
Bitcoin will likely remain top dog in the cryptoasset space for the foreseeable future, but eventually, it will be one among several mega-cryptos. It’s even possible it could be replaced.
- An Initial Coin Offering (ICO), is a sales offering of cryptocurrency tokens which may have some value in a technology ecosystem, e.g., the ETH token is used to pay gas fees (transaction and computing service costs) on the Ethereum blockchain. Many tokens, such as ETH have value in a given ecosystem. Those tokens are known as utility tokens.
- “Moon” in investor and crypto-speak is a term used to describe when the price of an asset rises rapidly, as in a rocket to the moon. 🚀 🌝
Eric Elliott is the author of the books, “Composing Software” and“Programming JavaScript Applications”. As co-founder of EricElliottJS.com and DevAnywhere.io, he teaches developers essential software development skills. He builds and advises development teams for crypto projects, and has contributed to software experiences for Adobe Systems, Zumba Fitness, The Wall Street Journal, ESPN, BBC, and top recording artists including Usher, Frank Ocean, Metallica, and many more.
He enjoys a remote lifestyle with the most beautiful woman in the world.
