Bitcoin Continues to Outperform as Crypto Market Shifts Toward Power Law Distribution, Says Felician Stratmann

The cryptocurrency market’s returns today exhibit a power law distribution, where a small number of assets generate outsized returns, greatly impacting overall portfolio performance, according to Felician Stratmann.

For many digital asset investors, Bitcoin serves as the ultimate benchmark—whether consciously or subconsciously. While Bitcoin has proved difficult to outperform in recent years, some investors have increasingly wondered whether it’s worth continuing to bet on altcoins. But has beating Bitcoin always been this hard?

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To explore this trend, we examined data from the top 150 cryptocurrencies by market cap (excluding memecoins and with liquidity filters applied to major centralized exchanges) over the past several years. The top 150 was chosen to represent a broad selection of assets that a portfolio manager would reasonably evaluate based on liquidity and asset under management (AUM) considerations. It’s also worth noting that prior to late 2020, fewer than 150 tokens met the necessary liquidity criteria.

Analysis of Bitcoin’s Performance Relative to the Top 150 Tokens

We analyzed the percentage of times tokens in the top 150 outperformed Bitcoin over a 365-day period. In 2019 and 2020, many tokens easily surpassed Bitcoin by substantial margins—sometimes more than 1000% above Bitcoin’s stellar returns. Back then, tokens that outperformed Bitcoin tended to have a market cap ranking averaging around 30.

However, since 2021, the scenario has changed. Only around 10-20% of the top 150 tokens have managed to outperform Bitcoin over a 365-day period. The average outperformance has also moderated to about +100%. Additionally, the market capitalization rank of these outperforming tokens has shifted higher, generally falling between the 60-80 range.

Key Takeaways

This shift suggests that outperforming Bitcoin has become significantly more challenging, indicating that the market has matured. Investors now expect tangible, measurable growth from crypto projects, making it harder for altcoins to outpace Bitcoin’s performance.

Nonetheless, smaller projects continue to hold substantial growth potential. Even in this maturing market, the top tokens in a relatively constrained liquidity environment still show the potential for over 100% gains compared to Bitcoin.

Overall, the data suggests that the crypto market is now driven by a power law distribution. A small group of assets are responsible for the majority of returns, which means identifying high-performing tokens is crucial. For investors in the liquid token space, diversification remains a largely underappreciated strategy. Given the nascent, startup-stage nature of many crypto projects, adopting a venture capital-style diversification approach could be advantageous.

While altcoins still have a bright future, achieving returns that outperform Bitcoin will require careful selection, as the competition has become tougher than ever.

Disclosure: This article is for informational purposes only and does not constitute investment advice. All investments carry risk, and past performance is not necessarily indicative of future results. Please refer to Outerlands Capital’s terms and conditions.

Note: The views expressed here are the author’s and do not necessarily reflect those of CoinDesk, Inc. or its affiliates.