Bitcoin Dominates Crypto Market, But Power Law Distribution Signals Growth Opportunities for Altcoins, Says Felician Stratmann
In the evolving world of cryptocurrency, market returns increasingly follow a power law distribution, where a small percentage of assets significantly impact overall portfolio performance, explains Felician Stratmann.
For many investors, Bitcoin has long served as the go-to benchmark, whether intentionally or by default. And while Bitcoin has proved nearly impossible to outperform in recent years, some are starting to wonder if it’s time to pivot away from altcoins. But has Bitcoin always been this dominant in the market?
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To understand this dynamic, we analyzed the performance of the top 150 cryptocurrencies by market cap (excluding memecoins and applying liquidity filters on major centralized exchanges) from 2019 to today. The top 150 was selected to reflect the typical set of tokens that an asset manager with substantial liquidity and AUM considerations would evaluate. Notably, until late 2020, fewer than 150 tokens met the liquidity requirements for analysis.
Outperformance Data: Bitcoin vs. Top 150 Tokens
We assessed how often tokens in the top 150 outperformed Bitcoin over a 365-day period. In 2019 and 2020, it was relatively easy to find tokens outperforming Bitcoin, with some beating it by over 1000%. During that time, the average market cap rank of these outperforming tokens was around 30.
However, since 2021, the landscape has shifted. Now, only about 10-20% of the top 150 tokens outperform Bitcoin on any given 365-day period, and those that do tend to show an average outperformance of just +100%. Additionally, the market cap rank of these outperforming tokens has shifted upward, generally ranging between positions 60 and 80.
Key Insights
This evolving trend highlights how challenging it has become to beat Bitcoin in recent years, signaling that the crypto market has matured. Investors now expect measurable, real-world results from projects, making it harder for altcoins to outperform Bitcoin’s relatively stable growth.
That said, smaller altcoins still hold significant potential. Despite the market’s maturation, top tokens within the constrained liquidity universe are still able to generate returns in excess of 100% compared to Bitcoin.
Overall, these trends suggest the crypto market is increasingly following a power law distribution, where a select few outperformers make up for the bulk of returns. For investors in the liquid token space, diversification remains a crucial strategy. Given that many crypto projects are still in their startup phases, adopting a venture capital-style approach to diversification could be an effective way to capitalize on the broader market growth.
While altcoins have bright potential, outpacing Bitcoin will require thoughtful, strategic investment—especially as the competition becomes more intense.
Disclosure: This content is for informational purposes only and should not be construed as investment advice. Investing involves significant risks, and past performance is not indicative of future results. Please review Outerlands Capital’s terms and conditions.
Note: The views expressed in this article are solely those of the author and do not necessarily reflect the opinions of CoinDesk, Inc. or its affiliates.
