Gains are ‘tipping the earth’ between Bitcoin and altcoins in 2021
Looking at the top 20 cryptocurrencies by market cap (excluding stablecoins), altcoins have shown the greatest returns, outperforming bitcoin.
According to Kraken Intelligence’s Cryptocurrency Review report, the crypto market has had a wide range of returns over the past year. For example, Shiba Inu (SHIB) turned in a gain of 41,800,000% while Bitcoin recorded only 58%.
While these numbers may seem high compared to traditional financial assets like the S&P 500 index, it’s important to note that Bitcoin is the third-worst performer of the top 20 cryptocurrencies — low, much more than the average 646% return.
Bitcoin has failed to make a name for itself over the last year
2021 is an epic year for the crypto market. After the turbulent 2020 caused by the global pandemic, 2021 begins with interesting positive signs. The market is recovering from the macro uptrend, bringing much needed upside to revitalize the industry.
In the report, Kraken Intelligence noted that the market as a whole ended 2021 up 187%. While that’s less than the 310% return in 2020, it still far exceeds the 58% return in 2019.
As the beacon of the broader crypto market, Bitcoin’s performance has always been viewed as an indicator of the actual state of the market. As every year in the last four-year market cycle, Bitcoin is outperforming most traditional financial assets such as the S&P 500, NASDAQ, gold, government bonds and high-yield bonds.
However, while Bitcoin is destroying returns from traditional financial markets, its performance in 2021 looks bleak compared to the rest of the crypto market.
Kraken’s report examined the top 20 cryptocurrencies by market cap (excluding stablecoins) and found that Bitcoin is the third-worst performing asset. LTC’s extremely modest 16% yield makes it the worst-performing investment, while BCH is the second-worst performing investment on Kraken’s list at just 26%.
It is not surprising that SHIB’s outstanding performance of the year removed DOGE from the position of memecoin king. Launched in 2020, SHIB has made a “huge” gain of 41,800,000% in 2021.
The top 20 cryptocurrencies by market cap achieved an average return of 2,240,000% and an average return of 646%. However, excluding SHIB and its unprecedented returns, the numbers above drop to 2,524% and 454%, respectively.
Return chart of top 20 cryptocurrencies by market cap (excluding SHIB) | Source: Kraken Intelligence
The altcoin season lasts 12 months
Looking only at decreasing volatility, known as the “Sortino Ratio”, Bitcoin remains the third worst performing asset. The Sortino Ratio is a variation of the Sharpe Ratio that plots the difference between harmful volatility and overall volatility. This ratio is calculated by subtracting the risk-free rate of return from the asset and dividing that number by the downside deviation of the asset. Since the Sortino Ratio only focuses on negative deviations in asset returns, it is intended to provide a better overview of risk-adjusted performance. Just like the Sharpe ratio, a higher Sortino ratio is better.
At 1.5, Bitcoin ranks extremely low on the list. Litecoin is still the underperformer at just 0.9, while SHIB’s stunning returns have pushed the Sortino ratio to 35.1.
Polygon (MATIC), Dogecoin (DOGE), Terra (LUNA), and Solana (SOL) are the top 5 where the Sortino ratio far exceeds the group mean and median by 5.3 and 3.5, respectively.
Sortino ratio chart for the top 20 cryptocurrencies by market cap | Source: Kraken Intelligence
Bitcoin, once the main driver of all market movements, is likely to fall behind in 2021. While Kraken admits that Bitcoin has had some historic times in the form of a dominance rate recovery, the trend for 2021 will be defined by altcoins, which hold a larger share of the defined market cap.
One of the biggest obstacles to Bitcoin’s significant growth this year is the law of large numbers. In particular, the asset cannot sustain the same growth as its market cap increases. With a market cap of more than $797 billion at press time, it’s hard to come close to being as profitable as low-cap altcoins over the past year.
Kraken Intelligence reports:
“The ups and downs associated with market participants changing their preferences from BTC to altcoins and vice versa may help explain the short- and medium-term volatility in the market.”
A deeper dive into Bitcoin’s relationship with the rest of the market also reveals another interesting trend: Bitcoin’s dominance rate is declining.
2021 begins with bitcoin dominance around 70% — meaning bitcoin accounts for 70% of the total crypto market cap. Shortly after the start of the year, however, Bitcoin entered a five-month downtrend that ended in June when market dominance fell to just 39%. According to Kraken Intelligence, this downtrend coincided with the market-wide selloff in May, which has led to a slow Bitcoin recovery over the past few months.
During the second half of 2021, Bitcoin’s dominance is mostly limited to the 40% to 50% range. This is the result of a rather interesting phenomenon – the majority of market participants see Bitcoin as a safe haven in the crypto ecosystem. This view means that most traders are returning to Bitcoin to preserve their wealth and avoid the altcoins’ most damaging halvings.
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