The New Altcoin Drama: Inflation, Awareness, and TikTok
Most crypto yields are driven by attention. Yet, even at peak attention, some assets underperform. Here's your guide to understanding the key factors influencing the market now.
We’re finally in a bull market, which has exposed some weaknesses in the economic reality of Web3.
For most market participants who have been actively building their portfolios over the last few years, the bull market has not been too generous. Many relatively young tokens are heavily underperforming. Meanwhile, older coins like $XLM, $XRP, $ADA, $DOT, and $ATOM are showing impressive returns.
They are no longer at the center of attention, so what’s happening?
Some context: Old and new shiny coins
Historically, newer altcoins (less than two years since their TGE) have consistently outperformed older ones across various time frames. However, a striking shift in this trend has emerged during this bull market. For the first time, older projects like $XLM, $XRP, $ADA, $DOT, and $ATOM are leading the market, while newer coins lag behind.
Let’s break down what this means, the potential reasons behind it, and what it signals for the future.
Explaining the Trend Shift: Key Insights
Fresh Capital, Not Rotation
The broad-based nature of the pump in older altcoins suggests that this trend isn’t driven by the usual rotation of capital within the crypto ecosystem. Instead, it seems to be the result of fresh incoming capital, likely from retail investors returning to the market.Retail is Back – But Differently
There are clear signs that retail interest is rising, evidenced by surges in Coinbase’s app ranking and increased crypto-related YouTube views. However, contrary to expectations that returning retail investors would focus on speculative memecoins, the inflows appear directed toward established projects from previous cycles. This could indicate that the current cohort of retail investors is older, more risk-averse, or familiar with specific altcoins from earlier bull markets.Age and Familiarity as Factors
The older altcoins pumping are projects well-known from previous cycles. This suggests that the returning retail investors are likely aged between 25–45 years, with some level of prior exposure to crypto. They may lack familiarity with newer narratives like DePIN, RWA, AI, instead opting for the comfort of recognizable names.Generational Dynamics
Gen Z participants, who might discover crypto through TikTok or meme-driven content, tend to have less capital to deploy. This could explain why memecoins, traditionally their domain, are not seeing significant inflows despite the retail resurgence.Inflation
Another factor that might influence the underperformance of new altcoins is inflation. Logically, older coins have higher percent of their supply circulating, so fresh capital is not diluted by new emissions.
Below, I'd like to focus on two crucial factors that significantly affect market performance in any bull market: inflation and retail demographics.
Inflation: The Hidden Killer of Your Crypto Yields
The ongoing bull run has brought euphoria to crypto markets, but it's also highlighted a sobering reality: inflation is eating away at your yields. For anyone chasing gains in this cycle, it’s crucial to account for the inflationary dynamics of your holdings.
Let’s break it down with some real-world examples:
In 2021, $SOL hit a price of $258 with a market cap of $75 billion. Today, it’s trading at the same $258—but its market cap has swelled to $122 billion. What’s changed? The circulating supply. Inflation has quietly diluted the value of each token, requiring a larger market cap to maintain the same price.
Here are a few more:
$TAO: Surpassed its ATH market cap of $4.6 billion, yet the price hasn’t reached new highs.
$ENA: Market cap is close to its ATH ($2.12 billion vs. $1.84 billion today), but the price has plunged from $1.49 to $0.64.
$ARB: March ATH market cap: $4.6 billion; now it’s at $3.8 billion. March price – $2.1. Current Price – $0.8.
$SEI: ATH market cap $2.8B vs. $2.25B recently and $1.03 ATH price vs. $0.53 now.
These are just a few such examples, but there are many more.
Altseason may be here, but inflation is robbing many assets of their potential gains. As circulating supplies increase, it takes more capital to sustain or grow token prices. Holding assets with aggressive inflation schedules means you’re fighting an uphill battle, even in a bull market.
To navigate this, consider these strategies:
Study Tokenomics: Before investing, scrutinize the inflation rate and token distribution schedules.
Diversify Wisely: Focus on projects with capped supplies or low inflation.
Evaluate Real Yield: Adjust your expectations for returns by factoring in inflation.
Inflation isn’t just a macroeconomic buzzword; it’s a silent killer of gains.
TikTok vs. Coinmarketcap
You, reading this, must be someone who has weathered both the bull and bear markets, delving into new protocols, farming airdrops, and exploring emerging narratives. You’re not the typical retail investor entering the market now, driven by bullish election news and Bitcoin nearing the $100K mark.
To truly understand retail investors, think back to your early days in crypto—when all you had was your CEX account filled with tickers that meant absolutely nothing to you.
I believe there are three types of retail users currently entering the market:
Gen Z, who might be buying memecoins based on TikTok hype.
Gen X, who may have prior experience in crypto.
Gen Y, who have been drawn into stock trading as it has become more accessible to retail investors in recent years.
Recently, I've been deeply involved in understanding the mindset of Gen Z. They differ significantly from other generations in how they think and approach risks. What I describe here pertains to the average person. If you're a Gen Z reader and find this irrelevant, you might be more of an exception than the norm.
For Gen Z, taking risks and losing is generally unappealing. Engaging in activities like farming airdrops, playing Hamster Kombat, or completing Galxe quests is much more attractive since it doesn't involve significant losses—time is their biggest investment. However, trading is a different story. When they're introduced to a bull run through TikTok, it might initially seem like an exciting adventure. Unfortunately, the reality can quickly catch up with them.
For Gen Y, the situation is different. If they become interested in crypto, they're likely already trading stocks and are aware of the potential risks. However, they're less likely to be drawn to memecoins. Instead, they open CoinMarketCap, review the list, and analyze the charts. Importantly, they also have more money than Gen Z.
These are just my thoughts, aligning with the latest market performance. However, this doesn't mean I'm 100% right or that it's the only explanation.