Pantera Capital, in its latest market report, delves into the volatility of digital assets, particularly Bitcoin (BTC), within different phases of a bull market, while also offering insights into the 2024 outlook for Bitcoin, altcoins, and decentralized finance (DeFi).
During the initial phase of a bull run, Bitcoin typically exhibits strong performance, often outperforming other assets. However, the subsequent phase sees several altcoins taking the lead in terms of performance, eclipsing the market leader.
This shift is primarily driven by factors such as the size of the asset, its market share, and the narratives surrounding it. Bitcoin, with a market capitalization exceeding $809 billion and a market share of 47.2%, remains the most sought-after cryptocurrency among institutional investors.
As institutional investors enter the market, igniting bullish momentum, they typically start by investing in Bitcoin and related products. This influx of institutional capital not only drives up Bitcoin’s price but also has a substantial impact on the overall cryptocurrency market.
This trend was evident in the past year when the market saw a resurgence of interest and increased institutional appetite, particularly in anticipation of a potential approval of a spot Bitcoin Exchange-Traded Fund (ETF) by the Securities and Exchange Commission (SEC).
Bitcoin is the first crypto of new entrants
Following BlackRock’s filing, alongside other traditional investors, the price of Bitcoin has experienced a remarkable surge of over 157% in the past year, piquing the interest of bullish investors in anticipation of another rally. However, the price has since tumbled following the final approval.
Moreover, Bitcoin remains the most favored asset for newcomers to the world of cryptocurrencies, thanks to its liquidity and appeal to a diverse range of investors. With a nearly 50% market share, novice users often begin their crypto journey by acquiring some Bitcoin before delving deeper into the broader cryptocurrency landscape.
“Additionally, first-time investors frequently start with Bitcoin before exploring other digital tokens. It boasts a 15-year track record and a reputation that many view as synonymous with the entire industry.”
In an attempt to decipher the correlations between tokens during a bullish market, analysts Cosmo Jiang and Erik Lowe examined the last two cycles when Bitcoin held a significant market share.
Once users become acquainted with Bitcoin, they expand their horizons to include alternative cryptocurrencies, exploring a multitude of use cases and innovations such as decentralized applications (dApps) and the surge of non-fungible tokens (NFTs) in 2021.
According to the report, altcoin dominance declines as the overall market cap grows in the early months, and after the initial 70% increase, altcoins experience an upswing.
In 2021, during phase 1, BTC witnessed a 77% growth, whereas altcoins only posted a modest 23% increase. However, in the later stages, while BTC recorded a 33% rise, altcoins surged by 67%.
“In the long run, the selection of tokens will be of paramount importance because outperformance will be evaluated on a case-by-case basis, rather than being tied to a specific sector or subject to short-lived speculative narratives.”
