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If you'd invested in the top 20 altcoins in 2021, your investments would be down 30% today.
15 out of 20 popular altcoins are worth less than they were four years ago.
Don't count on another altcoin season -- evaluate each project on its own merit.
On paper, the cryptocurrency market has erased the losses of the long crypto winter of 2022 and 2023. Last month, crypto's market cap -- the total value of all the cryptocurrencies in circulation -- set a new high. At a glance, it seems all's right with the crypto world.
In reality, many altcoins, which are essentially any cryptocurrency that isn't Bitcoin (CRYPTO: BTC), have not recovered. If you'd invested $200 in each of the top 20 altcoins four years ago, your original $4,000 investment would be worth around $2,840 today, per CoinMarketCap data. That's a 30% drop.
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Let's dive into why so many altcoins have underperformed, and whether they may yet recover.
Image source: Getty Images.
Bitcoin may be soaring, but if we compare crypto prices from Sept. 9, 2021 with the same day four years on, only five of the top 20 altcoins have gained in value.
The five altcoins that have gained value since September 2021 are:
These altcoins are clear beneficiaries of regulatory shifts. That includes the passing of U.S. stablecoin legislation in the form of the Genius Act, and a change in crypto attitudes from the Securities and Exchange Commission (SEC).
Stellar and XRP are both blockchain payment solutions providers that could benefit from a surge in stablecoin usage. Ethereum, Binance Coin, and Solana are all smart-contract cryptos with ecosystems where stablecoins and decentralized finance (DeFi) applications get built.
Another positive driver was the SEC's decision to drop its cases against Ripple Labs and Binance. This move lifted a lot of uncertainty around the XRP and BNB tokens connected to each company, and, to some degree, explains why these two cryptos have seen the biggest returns.
In cryptocurrency's short history, we've seen two big altcoin seasons. The first was in 2017 and 2018, after thousands of projects used ICOs -- initial coin offerings -- to raise capital. The second was in 2020 and 2021, when interest rates were low and the market was awash with stimulus checks.
A large part of today's crypto surge has been driven by an inflow of institutional money. The approval of spot Bitcoin ETFs and spot Ethereum ETFs was a game changer, as it made it easier for both institutions and retail investors to add the top two cryptos to their portfolios. According to CoinGlass, there's $170 billion in Bitcoin and Ethereum ETFs right now.
The focus on Bitcoin and Ethereum is one reason that other crypto hopefuls from 2021 have struggled to regain momentum. But that's only part of the answer. Some have also had technical difficulties or leadership issues. Others lost ground to competitors, while Terra (CRYPTO: LUNA) collapsed completely.
Here are the altcoin leaders from September 2021 that have lost value since then:
Two of the rallying cries you'll often find on crypto channels are "Buy the dip," and "HODL -- Hold On For Dear Life." But buying the dip only makes sense if you think the project can perform well in the future. Similarly, holding is often a great strategy, but if you no longer see potential in the project, it may be time to sell your crypto.
The coins above tell different stories and have to be evaluated in their own right. For example, Polygon struggled after it migrated from its MATIC token to POL, and seems to be losing ground to its competitors. Just one of the original founders remains, and it will take some nifty footwork to get it back into the top 20 cryptos.
In contrast, Chainlink could be on the edge of an exciting new chapter. It recently announced a big partnership with the U.S. government and is actively working with other financial institutions. There are good reasons to think it might benefit from a surge in stablecoin and DeFi activity.
It's unlikely we'll see another altcoin season per se. The market is maturing, and the influx of institutional, corporate, and government money tilts the balance more toward less speculative cryptos.
Today's economy is very different from what it was four years ago, as is the crypto market -- not least because there are so many more cryptocurrencies. Coinbase (NASDAQ: COIN) CEO Brian Armstrong posted on X that there are around a million new tokens created every week.
The sheer volume makes it hard to imagine a repeat of 2021's crypto frenzy, where cash flowed into every corner of the market. That isn't to say that altcoins will never shine. Bitcoin and Ethereum don't exist in isolation and are far from the only investment opportunities in crypto. Projects with utility and active user communities may succeed, particularly as cryptocurrency becomes more mainstream.
What's more likely is that we'll see a different type of altcoin season later this year, based on quality projects and, potentially, driven by increased institutional investment into altcoin ETFs. That's because the SEC could well approve a slew of altcoin ETF applications in the coming months. These include Solana, XRP, Cardano, and more.
Cryptocurrency is a high-risk investment. That risk is even higher with less established projects. They tend to have less liquidity, a shorter track record, and can be speculative. Think of altcoins like penny stocks -- people buy them in the hope of high returns, but they also carry a lot of risk. Several projects that looked promising four years ago now look unlikely to recover.
One of the biggest lessons to learn from the last crypto boom is that even popular projects can fail. If you want to buy altcoins, make sure that crypto only accounts for a small part of your overall portfolio, and that your crypto investments themselves are diversified.
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Emma Newbery has positions in Algorand, Avalanche, BNB, Cardano, Ethereum, POL (ex-MATIC), Polkadot, and Solana. The Motley Fool has positions in and recommends Avalanche, Bitcoin, Chainlink, Ethereum, Solana, Uniswap Protocol Token, and XRP. The Motley Fool recommends Coinbase Global and Internet Computer. The Motley Fool has a disclosure policy.
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