Why Bitcoin Could Get a Strong Boost as Altcoin Valuations Become “Frothy”
It may seem as though Bitcoin has been stealing the crypto spotlight since the start of 2020 — and that’s true. The leading cryptocurrency’s directionality decides how altcoins will trend, with “all ships” in this industry rising and falling with the tide.
Interestingly, though, it is altcoins that have outperformed BTC over recent weeks. And a prominent investor thinks that this may be a catalyst for the cryptocurrency to appreciate strongly in the coming months.
Altcoins Strongly Outperform Bitcoin
As reported by Bitcoinist earlier this week, it’s been a surprisingly strong past few months for altcoins.
A prominent analyst in the space shared the chart below, showing the performance since the start of the year of Bitcoin, small-cap altcoins, medium-cap altcoins, and large-cap altcoins.
While all assets were trading almost identically in March after the capitulation event, altcoins have strongly outperforming Bitcoin. So much so that the small-cap altcoin index from FTX is up 80% since the start of the year while Bitcoin is up a relatively measly 33%.
The recent strength in altcoins is notably centralized in a few players.
NewsBTC reported that three tokens in the decentralized finance space — Kyber Network’s KNC, Loopring’s LRC, and Aave’s LEND — have appreciated parabolically since the start of the year.
They are benefiting from growth in Ethereum, both in terms of the price of ETH and users of the blockchain.
Ethereum and Cardano’s ADA, too, have registered impressive gains over recent weeks.
In the past three weeks, ADA is up approximately 80% due to developments in the blockchain’s Shelly upgrade. In the past month, Ethereum has registered a gain of 30%, outpacing almost all large-cap cryptocurrencies as development on Ethereum 2.0 continues.
BTC Stands to Benefit
Bitcoin stands to benefit as money made through altcoins stands to cycle back into Bitcoin as investors look to secure profits, according to a top investor.
Kelvin “Spartan Black” Koh, a partner at The Spartan Group and a former Goldman Sachs partner, recently shared this sentiment when he wrote:
“We have seen a major re-rating in many of the smaller altcoins (esp DeFi ones) in the past 4-5 weeks while BTC has been range bound. At some point, the valuation of these alts will start to look frothy and the capital will flow back to BTC.”
Risk appetite is returning.
We have seen a major re-rating in many of the smaller altcoins (esp DeFi ones) in the past 4-5 weeks while $BTC has been range bound.
At some point, the valuation of these alts will start to look frothy and the capital will flow back to $BTC.
— SpartanBlack (@SpartanBlack_1) June 9, 2020
Koh is referring to the sentiment that once investors realize altcoins are overvalued, they immediately siphon their funds into Bitcoin as a way to hedge downside risk while still maintaining exposure to cryptocurrency.
Featured Image from Shutterstock Price tags: xbtusd, btcusd, btcusdt Bitcoin Could Get a Boost as Certain Altcoin Valuations Become "Frothy"