It’s Altcoin Season
The US election last week turned out to be the spark to ignite the next crypto rally. Since its outcome became clear, BTC has been chasing all-time high after all-time high – and new highs of public attention. However, the biggest change in crypto markets went largely unnoticed. What nobody talks about yet is not about Bitcoin: For the first time this cycle, altcoin returns have consistently been beating the bellwether.
This is exactly the scenario for which we positioned the F5 Crypto Fund when we divested from BTC in August.
Beyond Bitcoin…
When we announced we had “built back beta” with our decision to set the fund’s target allocation for BTC at 0%, we drew strong reactions for our unconventional move.
Some were mere misunderstandings, like “are you bearish on Bitcoin?” No! We were emphatically stressing that the decision followed our strong bullish stance – combined with our experience of crypto cycles.
In crypto markets, Bitcoin plays a role unlike any asset in the stock market: currently, this one asset alone makes up 58.4% of the total market cap of the entire asset class (“Bitcoin dominance”). Bitcoin does not only serve as a bellwether – it is more than half of the entire market. Therefore, historically crypto bull-markets start with major inflows into BTC. At first, Bitcoin outperforms most coins.
Then Comes Altcoin Season
However, as the bull cycle progresses, liquidity moves from the oldest crypto project to newer, alternative projects, to altcoins. Given that no other token has a market depth or liquidity comparable to Bitcoin, even smaller inflows tend to lead to much larger gains. This liquidity effect comes on top of the fair risk compensation, which is higher for larger-risk coins (in financial lingo: “higher beta”).
Obviously, the precise point in time of such a shift is close to impossible to determine in advance. Yet, since last week our portfolio has shown what such an altcoin season looks like: every single token has significantly outperformed BTC:
| Ticker | Token | Performance since Nov 4th | Outperformance vs. BTC |
|---|---|---|---|
| SOL | Solana | +33.5% | +14.8% |
| ETH | Ethereum | +33.1% | +14.5% |
| JUP | Jupiter | +46.6% | +27.9% |
| AAVE | Aave | +48.5% | +29.8% |
| MKR | Maker | +28.4% | +9.7% |
| RUNE | Thorchain | +37.1% | +18.4% |
| OP | Optimism | +22.6% | +3.9% |
| PYTH | Pyth Network | +32.3% | +13.6% |
| JIT | Jito | +65.8% | +47.1% |
| LDO | Lido DAO | +37.9% | +19.3% |
| RPL | Rocket Pool | +36.7% | +18.0% |
Does this mean that such a pattern will continue unabated? Of course not; every financial return carries a large random component, and some altcoins will suffer losses. So does it mean that any random selection of altcoins outperformed BTC these days? No, certainly not. The fact that the Bitcoin dominance has actually increased over the last month proves that many altcoins did not outperform BTC.
The key challenge of a crypto fund is its goal to meet two criteria simultaneously.
It Takes Two to Tango…
First, adjusting the portfolio to fit the current position in the crypto cycle is of key importance.
Acknowledging Market Seasonality
I explained our logic with this very simple graphic when we announced our zero-BTC decision:
During bear markets, market risk as measured by beta should be kept low. During bull markets, beta should be increased in order to participate from the altcoin season as soon as it sets in.
Did we time our exit from BTC perfectly? Of course not. Over the period from our announcement until the evening prior to the US election, BTC outperformed our fund (+16.9% over 68 trading days). Yet in just 6 trading days of altcoin season, the fund has outperformed BTC already by +14.2%.
In crypto markets, being too early is unpleasant, but being too late can quickly be devastating.
Separating the Wheat from the Chaff
Second, a long-term successful altcoin portfolio needs to pick “the right” crypto tokens.
In stock markets, with notable exceptions like Enron or Wirecard, strict regulatory oversight of listings at stock exchanges prevents most disastrous investment outcomes. In stark contrast, most cryptos have close to no oversight. As the Terra/LUNA debacle or the FTX collapse showcased in 2022, seemingly successful projects can see their token collapse into nothingness extremely quickly.
Therefore, the onus lies firmly with the asset manager. Those who invested passively based on market-cap rankings lost practically their entire investments in LUNA and FTT. Based on our research, the F5 Crypto Fund never took active positions in these tokens, and thus avoided their losses.
This is why we rigorously research every token before we take a position, and monitor closely all projects where we do.
Our Outlook
We are happy to see the altcoin season starting, not because it vindicates our bold no-BTC decision, but because it plays directly into our biggest strength: fundamental analyses of crypto tokens and their return potential.
Through bear and bull markets, for 3 dynamic years, we have always kept the F5 Crypto Fund true to our vision: putting security first, build the crypto portfolio of the best crypto tokens based on rigorous fundamental analyses.