How Bad is an Altcoin Bear Market?

As an altcoin investor/newsletter writer, I sometimes get criticism for my altcoin-optimistic attitude. Sure small-cap cryptocurrencies can outperform Bitcoin in a bull market, but what about when the market tanks? What does altcoin investing look like when things are less-than-bullish?

Let’s take a look!

The Parameters

This analysis is based on three points in time:

The first date is Bitcoin’s 2017 high point, nearly universally considered the ‘cycle peak’ of the last bull market.

By the next December, the market was in pretty horrible shape, wicking down to about $3500, one time in December 2018 and another time in January 2019. We’ll use the January 2019 date for our ‘market bottom’ analysis.

The final date is September 13th, the date I’m using for the present.

Phase One: The Bear Market (December 2017 — January 2019)

First up? The small-cap altcoins, position 101–200 by market cap. We buy them for one reason: crazy returns in the bull market. But is it a different story in the bear market?


The average return of these assets from market peak to market bottom? Negative 90%. The best performer (KuCoin) dropped 37%, and 20 of the coins are worth less than a cent. 99 of the 100 have gone down over 50%, and a minority (37 of the 100 coins) have dropped less than 90%.

An investment of $1,000 in each one of these coins ($100,000 total) at the peak would be worth a mere $10,480: at the bottom of the market cycle, it’s hard to feel good about your altcoin portfolio.

Things are looking not-that-great for altcoins. But to be fair, we haven’t yet looked at how the top 100 coins have held up either.

Here’s a table of returns over this timeline by cohort, including top-two cryptos Bitcoin and Ethereum.

Ok, so it turns out it’s pretty bad no matter what, but the top 100 cryptos have held up a bit better: the top-100 portfolio of $1,000 in each coin is worth about 60% more than our small-cap crypto portfolio ($16,499 to $10,480).

Just six of the top 100 have dropped by over 99%, while twelve of the small-caps have performed the same (depressing) feat. Only two non-stablecoins have produced positive returns, both of them in the top 100 ($BNB starting at #36 and $LINK starting at #91).

And you’d be right to be bearish on altcoins in this time period. Here’s a graph of the top 200 coins and their average returns. I’ve performed a linear regression on the data, but take it with a grain of salt.

The altcoin critics have largely been proven right: in an extended downward market slump, the data argues you’re better off by quite a bit by investing in larger market caps. A random investment in the top 100 is half as likely to go to zero as a random investment in the next 100. But either way, things are not great.

While many in the crypto world advocate for Bitcoin as a relatively safe asset, it’s still performing really poorly, disastrously so, compared to nearly any other asset. Over this same time period, the S&P 500 only lost about 5%. Peak to trough in the great recession, the S&P 500 dropped 57.7%. That’s painful, but not as painful as 90%.

Phase Two: The Peak to Today (December 2017 — September 2021)

Realistically, it’s pretty universally assumed that altcoins bleed more than blue chips during a bear market. That’s a granted, and it’s part of the reason altcoins move up quicker in bull markets.

But perhaps the most interesting data comes from a HODL (hold-on-for-dear-life) approach. How do these coins perform top to bottom to top again? Do altcoins eventually bounce back? Or will these once-hot assets drop off the map, never to be seen again?

Here’s a graph with a linear regression:

Again, we have a negative slope on the graph, meaning that larger market cap coins on average do better over this period. But the data doesn’t seem to point out the theory posited by altcoin critics, summed up by the following quote:

Our graph shows that altcoins don’t die forever. Small-cap altcoins don’t rebound as hard, but they don’t disappear either. Here are some of the averages by cohort where we can take a closer look:

This data definitely proves at least one thing for me: a diversified portfolio of altcoins outside of the top 100 is not going to become worthless, not by any means. The portfolio isn’t thriving, that’s for sure: 20 of the top 100 have lost over 99% of their value, and only 7 of the coins have 2x’d or better. But a portfolio that returns over 50% in a few years isn’t something most people complain about.

That being said, this point in the cycle is definitely where the Ethereum and Bitcoin bulls are getting their revenge. Both of those cryptos performed well above average. But lower market-cap altcoins seem to perform comparably to the top 10 cryptos on average, and both of those performed comparably to the S&P 500 (65%).

Trough to Today (January 2019 — September 2021)

Obviously, it’s impossible to predict the bottom of a market cycle, and it’s really hard to have the cojones to buy altcoins there, but for fun, let’s imagine we can perfectly time the market, and buy coins at the exact bottom. What will do better? The top 10, the top 100, or the next 100?

Keep in mind, for this experiment, we’re buying the new ranking of coins, not the old ones. Here’s that graph:

And some cohort averages:

Those are some pretty powerful returns for the second cohort. Spreading $100,000 evenly across those ($1000 in every crypto) would today yield you over 2.1 million dollars. Even throwing the whole wad in Bitcoin would net you a cool $1.2 million, so I guess I won’t blame you if you only want to invest in $BTC. Me, myself, I’ll continue to chase those 100x gains.

Some stats by cohort:

  • Six of the top 100 have gone to zero, compared to eight of the next 100
  • Both cohorts have 12 coins returning over 15x
  • 61 of the top 100 have returned over 100%, compared to 34 of the next 100
  • The second portfolio’s gains are primarily driven by coins that return over 40x, like Quant, Theta, Enjin Coin, and Telcoin.

The Lessons
I think the lesson in this analysis I’ll take away is that there’s certainly a strong case for keeping your money in Bitcoin and Ethereum. They’ve got lower downside risk and will likely bounce back stronger than the average altcoin.

But those up and comers, those altcoins floating around outside the top 100 are awfully tempting to invest in if you’re looking to create incredible returns. That’s easier said than done, but a diversified portfolio backed up with strong altcoin research is a good place to start.

1 comment

Comments are closed.