Do New Investors Stick with King Bitcoin or Back an Altcoin Surge?
Bitcoin has been hitting the headlines again recently. And by “headlines”, we mean it has become a talking point again for those outside the normal crypto sphere. There is an old saying among crypto enthusiasts that states, “When your Uber driver or barber is talking about Bitcoin, it’s time to sell.” There is some truth in that statement, but it should also be taken with a pinch of salt. To be frank, we aren’t quite there at this point in the cycle. However, it is approaching the point where retail investors will return to the crypto markets, and with it will come new participants who have never traded before.
For those “newbies”, it is, of course, Bitcoin that is likely to be the initial entry point. The token recently surpassed the symbolic $50K point, and there is a broad consensus that all-time highs will be eclipsed in 2024. The recent United States ETF approvals have caused a surge in institutional interest, and eventually that will filter down to retail investors, even those who feel they were burned by the Crypto Winter.
Bitcoin has a ceiling
Yet, for those learning how to trade Bitcoin, there must be a realization that a ceiling exists. The likes of Michael Saylor and ARK Invest’s Cathy Woods may preach that many more multiples are possible in the short to medium term, but most realists believe that there is going to be a point where Bitcoin cannot keep doubling its market cap.
To illustrate our point, let’s do some quick back-of-a-napkin math. Say a new investor is entering today with one Bitcoin trading at $50K USD ($77K AUD). Now, that roughly puts Bitcoin at a $1 trillion market cap (it’s actually higher at the moment, but let’s use this for the sake of simplicity). For that investor to make a 2X on their initial, Bitcoin would need to hit $150K and a market cap of $3 trillion; this is similar to the annual GDP of France. It’s not unattainable, but it shows you the vast sums we are dealing with. For Bitcoin to hit a million dollars, giving our hypothetical new investor a 20X return on his initial investment, Bitcoin would need a market cap close to $20 trillion – about 25% more than the annual GDP of the entire European Union.
Now, there are counter-arguments to the above, and they basically surround the fact that Bitcoin is evolving to become the store of value that many predicted it would become. It’s not a question of hedge funds buying up BTC on behalf of institutional investors but countries holding Bitcoin as part of their reserves. When you factor in these kinds of moves, the figures mentioned above start to seem attainable. Some have also pointed to the halving (due April 2024) potentially creating a supply shock. Yet, most level-headed participants will believe that it would take a lot of time, perhaps a couple of Bitcoin cycles, to reach these kinds of levels, if at all.
Alts have more potential for retail investors
If you agree with the above analysis and if you were advising a new investor, it is arguable that you would nudge them towards altcoins. There is, of course, more risk here, but the upside is much greater. We could point to dozens of established altcoins – ROSE, LINK, INJ, RNDR – where 50 or 100X gains are much more achievable. Now, we aren’t saying those coins will definitely do that – far from it – but simply that the math adds up.
Take, for example, Injective (INJ), which has been gaining traction as it looks to build a huge DeFi ecosystem. INJ was one of the big winners in 2023, and today, it is up around 30X from where it was in January 2023. Its market cap is just a bit over $3 billion. Thus, its journey toward 50X gains for our newbie investor would require a market cap of $150 billion. Difficult to achieve? Yes. More likely than Bitcoin reaching $20 trillion? Yes.
And that is the rub: Our goal here is not to wax lyrical about Injective or any other altcoin. Rather, it’s to point out that the ceilings of Bitcoin, at least for the typical investor, will see an upside more limited. That, of course, is a natural progression in crypto. As Bitcoin continues to rise, the typical retail investor might feel shut out of the market, and they will start to look at altcoins instead; this is part of the normal capital flows of crypto, and it is what tends to give us an “alt season”. But it’s going to be interesting this cycle to see how and where retail investors enter the market. Bitcoin is still king, and long will it reign. But it may be that the newbies eschew it, leaving it to the BlackRocks of the investing world, choosing instead to explore the world of alts from the outset.