Cryptocurrencies have taken the world by storm since over a decade ago. Bitcoin, which used to be valued at less than $1, has been trading consistently above $8,000 since a few months ago. Many people suddenly got rich and became “whales” of the crypto world. However, the altcoin revolution in 2016-2017 had completely changed the landscape. People didn’t really get rich from Bitcoin anymore but rather from altcoins like ETH and others.
The year 2020 looks a bit similar to the year 2016 and 2017. There are some similarities when it comes to the rise of DeFi-related and yield farming tokens. While BTC has been struggling to make good gains, these yield farming tokens were going through the roof. So, here’s the question, is it better to invest in altcoins rather than BTC? Let’s see.
The Rise Of DeFi As The Catalyst Of Bull Market
The can of worms was opened after Compound Finance introduced its own yield farming token COMP to the liquidity providers in Compound protocol. The token immediately pumped over hundreds of percent within a very short period of time. Eventually, the pump didn’t last, it was dumped afterward, but it successfully sparked the debate about the future of crypto market.
Soon afterwards, many other DeFi-related tokens were issued to the market. BAL (Balancer), YFI (yearn.finance), SUSHI (Sushiswap), SUN (sun.market), PICKLE (pickle.finance) and others have been trying to capture the crypto traders’ attention. Many of these token prices went up very high at one point, with over 1000% increase sometimes.
The DeFi craziness actually pumped the entire crypto space as well. Bitcoin, Ethereum, and others have been getting more popular thanks to the DeFi industry. Many experts have started to claim that the DeFi craze might not last, but at least their fundamentals are still strong because they actually mimic the basic functions of traditional finance (trade, lend, borrow). And when you remove the idea of a centralized entity controlling these functions, it suddenly makes sense.
The Resemblance To ICO Days
When people invest in cryptocurrencies, the first thing they have in mind is almost always, “can I make money with this?”. Sure, they can believe in the idea of decentralization, but they invest their money because they want to make a good amount of ROI. And if you missed out on the rise of BTC in the past decade, you might want to think of investing in altcoins.
It’s undeniable that investing in altcoins might provide better opportunities for our money (despite greater risk as well). The resemblance of 2020’s rise of altcoins to 2017’s ICO days cannot be avoided. While Bitcoin only went up for 20-30%, yield farming tokens could easily go up for hundreds of percent. Yep, just like the ICO days when token sale participants could easily make 5-20x gains while BTC hodl-ers were not able to make that much.
Market Cycles And Risk Management
However, it’s also important to understand that the crypto market moves within cycles. Not just about the bull market and bear market but also about BTC market dominance vs. altseason. Check the below chart:
From this chart, you can see that one trend never lasted forever. For example, look at early 2017 when BTC market dominance fell very sharply, and ETH even almost did a “flippening” against BTC. However, that trend didn’t continue when people expected it the most. BTC successfully regained its market dominance until late 2017.
Things kept going in cycles, with BTC market dominance kept going up and down depending on the months and the years. Recently, BTC market dominance has been going down, but we don’t know whether this trend can keep going or not.
Why am I bringing this topic to the article? Because it’s important to understand that investment is all about risk management. While investing in altcoins often provide much more lucrative ROI, they also come with big risks if you invest in them during the time period when BTC regained its market dominance against altcoins. Stay safe with your trades.