Original title: The New Altcoin Drama: Inflation, Awareness, and TikTok
Original author: Stacy Muur, crypto researcher
Original translation: TechFlow
We are finally experiencing a bull run, but this has also exposed some weaknesses in the economic reality of Web3.
For market participants who have been optimizing their portfolios over the past few years, this bull run has been a bit stingy. Many newer tokens have performed poorly, while established currencies like XRP, $ADA, $DOT, and $ATOM have achieved impressive returns.
Background: Performance comparison between old and new coins
Historically, newer altcoins (tokens with less than two years from TGE, or Token Generation Event) usually consistently outperform established coins over different time periods. However, this bull run has shown a completely different trend: established projects (such as $XLM, $XRP, $ADA, $DOT, and $ATOM) have become the dominant force in the market, while new coins have performed mediocrely.
Next, we will explore the reasons behind this phenomenon, its potential significance, and its implications for the future.
Analyzing changing trends: key insights
1. New capital inflows, not capital rotation
The overall rise of established altcoins suggests that this trend is not caused by a rotation of funds within the crypto market. It is more likely that the market is attracting new capital, especially from retail investors who are re-entering the market.
2. Retail investors are back, but with a different focus
With the rise of Coinbase app rankings and the increase in the number of views of crypto-related YouTube content, the return of retail investors is obvious. However, unlike the expected retail investors to put their funds into high-risk Memecoins, these funds seem to flow more to mature projects in the last bull run. This may indicate that the current group of retail investors is older, more risk-averse, or more familiar with well-known altcoins in the last bull run.
3. Familiarity and trust as determining factors
The old altcoins that have performed well in this round of bull market are basically the star projects in the previous round of bull market. This shows that the returning retail investors may be between 25 and 45 years old and have some experience in the cryptocurrency market. They may lack understanding of newer narratives such as DePIN (decentralized physical infrastructure network), RWA (real world assets) and AI, so they are more inclined to choose those familiar projects.
4. The impact of generational differences
Meanwhile, Gen Z investors, who often get exposed to cryptocurrencies through TikTok or meme-driven content, have less capital to spend. This may explain why the memecoin market has failed to attract significant inflows despite the return of retail investors.
5. Impact of inflation
Another important factor that causes the poor performance of new altcoins is inflation. Relatively speaking, the circulating supply of old coins is higher, so new capital will not be diluted by the continuous issuance of tokens.
If you are interested in these trends, future market dynamics will be worth keeping an eye on. Will the rise of established currencies change the economic landscape of Web3? How will new currencies cope with these challenges? Let’s wait and see.
In the following content, we will focus on two key factors that have a significant impact on market performance in a bull market: inflation and retail investor demographics.
Inflation: The invisible killer that eats up crypto gains
The current bull run has filled the crypto market with optimism, but it has also exposed a reality that cannot be ignored: inflation is quietly eroding investors’ returns. For any investor who hopes to reap returns in this bull run, it is crucial to understand the impact of inflation on asset values.
Lets use some practical examples to illustrate:
In 2021, $SOL reached a price of $258, with a market cap of $75 billion. Today, its price is still $258, but its market cap has grown to $122 billion. What is behind this change? The answer is: an increase in circulating supply. As the supply expands, the value of a single token is diluted by inflation, so a higher market cap is needed to maintain the same price level.
Here are some more similar cases:
$TAO: Although its market capitalization has surpassed its all-time high (ATH) of $4.6 billion, the price has failed to reach a new high.
$ENA: Currently close to its all-time high ($2.12 billion vs. current $1.84 billion), but the price has dropped from $1.49 to $0.64.
$ARB: ATH market cap was $4.6 billion in March, now down to $3.8 billion. Price was $2.1 in March, now only $0.8.
$SEI: ATH market cap was $2.8 billion, and recently it is $2.25 billion; ATH price was $1.03, and now it is $0.53.
These are just the tip of the iceberg. In fact, many tokens face similar dilemmas.
Even though the “altcoin season” seems to have arrived, inflation is still quietly undermining the potential returns of many assets. As the circulating supply increases, more capital investment is required to maintain or grow the token price. For assets with higher inflation rates, investors have to face an uphill battle even in a bull market.
How to deal with the inflation challenge
To better protect their gains in a bull market, investors can adopt the following strategies:
1. Study Tokenomics: Before investing, carefully analyze the inflation rate of the project and the token distribution plan. Pay attention to projects with slower supply growth or lower inflation rates.
2. Diversify wisely: Prioritize projects with a limited total supply or a clear inflation cap, such as Bitcoin (BTC).
3. Assess real returns: When calculating investment returns, take inflation into account and adjust your expectations of returns.
Inflation is not just a macroeconomic term, it is actually the silent killer of returns in the crypto market. Understanding and effectively dealing with the impact of inflation will be one of the keys for investors to win in the bull market.
TikTok vs. CoinMarketCap
If you are reading this, you are likely a seasoned investor who has experienced both bull and bear markets. You may have researched various new protocols, participated in airdrop mining, and explored many emerging investment narratives. In contrast, the average retail investor who just entered the market because of good election news or Bitcoin price approaching $100,000 has a completely different background and mentality than us.
To really understand the behavior of these retail investors, think back to when you were first introduced to cryptocurrencies. At that time, you probably only had a centralized exchange (CEX) account filled with token codes that were completely unfamiliar to you.
I believe that the retail investors who are new to the market can be roughly divided into the following three categories:
Generation Z (Gen Z): This generation may buy Memecoin (usually a token with high entertainment value and high volatility) due to the popularity of TikTok.
Generation X (Gen X): This generation may have some experience in crypto investing in previous bull markets.
Generation Y (Gen Y): In recent years, they have been attracted to the market as stock trading has become open to retail investors, and they may be interested in the crypto market.
I recently did some in-depth research on the investing mindset of Generation Z. They have significant differences in risk attitudes and behavior patterns compared to other generations. The following descriptions may be more applicable to the average Generation Z investor. If you are a Generation Z reader and feel that these contents do not apply to you, then you may be an exception.
For Generation Z, taking risks and suffering losses is usually undesirable. They prefer to participate in low-risk activities, such as earning income by completing Galxe tasks, playing Hamster Kombat games, or participating in airdrop mining. The biggest investment in these activities is time, not money, so they are more attractive to them.
Trading, however, is a completely different ballgame. When Gen Z is introduced to the bull market through TikTok, it may initially feel like an exciting adventure. But as market volatility brings losses, they are likely to quickly feel the harsh reality.
In contrast, the situation of Generation Y is different. If they are interested in cryptocurrencies, it is probably because they have accumulated certain trading experience in the stock market and have a clearer understanding of investment risks. Therefore, they are less likely to be attracted by high-risk Memecoin.
Generation Y is more likely to open CoinMarketCap, check token lists, analyze market charts, and make decisions based on data. In addition, they usually have more disposable funds than Generation Z, which makes them more rational and stable when choosing investment targets.
Conclusion
The above are some of my views on the behavior of retail investors in the current market, which are basically consistent with the recent market performance. Of course, this does not mean that my analysis is 100% correct, nor does it mean that this is the only explanation.
