Pantera Investment Guide: In a Bull Market, Invest in Bitcoin First, Then Altcoins
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Pantera Investment Guide: In a Bull Market, Invest in Bitcoin First, Then Altcoins
Invest in altcoins that have fundamental reasons to appreciate many times more than Bitcoin.
Navigating Web3 tides with focused insightsAuthor: Cosmo Jiang & Erik Lowe, Pantera Capital
Translation: TechFlow
Pantera Capital recently published an in-depth article detailing its outlook on the 2024 crypto market, including investment strategies, key areas of focus, and trend forecasts.
Due to the article’s length, we have translated it in parts according to thematic sections.
This is the first part of the full article, written by Portfolio Manager Cosmo and Head of Content Erik. It provides a deep analysis of bull market phases in digital asset markets, particularly the relationship between Bitcoin and other tokens (altcoins).
The authors note that bull markets typically consist of two stages: in the first stage, Bitcoin outperforms the rest of the market; in the second stage, altcoins outperform Bitcoin. The article also explores the reasons behind this pattern, such as Bitcoin’s liquidity and name recognition, as well as investors’ growing interest in emerging tokens.
We are often asked by investors, “How do various tokens correlate during a bull cycle?”
To provide some perspective, we will analyze the two most recent cycles in which investable tokens beyond Bitcoin captured significant market share.
We observe that bull cycles exhibit two distinct phases. The first phase occurs early in the bull market, when Bitcoin tends to outperform the broader market. The second phase comes later, when altcoins tend to perform better.
We believe Bitcoin’s outperformance in the first phase can be attributed to several factors. First, it is the largest and most liquid digital asset. In 2023, Bitcoin’s average daily trading volume was $18 billion, compared to $8 billion for Ethereum. Second, new investors typically start with Bitcoin before exploring other tokens. With a 15-year history, Bitcoin is widely seen as synonymous with the industry itself.
While some investors’ journeys end with Bitcoin, many go deeper into the cryptocurrency ecosystem. The universe of investable tokens beyond Bitcoin is vast, and bull markets appear to accelerate expansion in this space as more entrepreneurs and developers enter. The second phase begins when investors seek higher-growth tokens supporting diverse use cases—often driven by new innovations such as ICOs in 2017–18, DeFi and NFTs in 2020–21.
Below are charts highlighting these two phases with gold shading. You’ll notice that during the first phase of the cycle, altcoins’ market share declines even as total market capitalization rises—indicating Bitcoin is outperforming the market. Around 60%-70% into the bull cycle, altcoins’ market share surges sharply.
Below are actual returns in market cap growth for Bitcoin and altcoins, along with each asset class’s contribution to overall crypto market growth.
Across these cycles, Bitcoin consistently outperformed altcoins in the first phase of the rally. In the second phase, altcoins significantly outpaced Bitcoin. Interestingly, altcoins performed so strongly over full cycles that they ultimately outperformed Bitcoin across both complete cycles.
Historically, one of the highest-returning strategies has been perfectly timing the shift from Bitcoin into altcoins at the start of the second phase. However, this relationship isn’t guaranteed to hold every cycle, and perfect market timing is unrealistic for any trader.
Perhaps the most viable way to generate alpha in this space is through consistent investment—focusing on altcoins with fundamental justification for multiplying in value many times over Bitcoin.
Our argument is that protocol-based altcoins with product-market fit and real revenue generation will outperform in the next cycle, just as one would expect in other asset classes like equities. Just as not all stocks are created equal, not all tokens are created equal. Over time, token selection matters greatly—outperformance will depend on specific projects rather than entire sectors, and not on fads or fleeting speculative narratives.
So far in this cycle, Bitcoin has risen 2.8x while altcoins have risen 1.7x.
What about venture capital investment patterns across crypto market cycles?
Since Q1 2022, private blockchain funding has been slowing down. According to The Block, both quarterly fundraising totals and the number of deals have declined.
After peaking in early 2022, average deal sizes have dropped significantly.
It should be noted that this data is based on publicly announced funding rounds, which in our view typically lag actual activity by one to two quarters.
Based on our observations at Pantera, we believe the trough in fundraising and deal activity likely occurred last summer. Recently, we’ve seen a significant rebound in deal flow—driven by entrepreneurs who entered the space during the last bull market, whose businesses have now matured, achieved product-market fit, or executed sound strategies, and are returning to raise funds at reasonable valuations.
This resurgence may have taken longer than many expected because, during the bull market, many VCs—including ours—advised companies to raise enough runway for one extra year. Instead of raising for two years, they raised for three, and now we’re starting to see them return to the market.
We believe this presents a strong investment opportunity, as deal activity has picked up and, if public markets continue to recover, we expect this trend to persist throughout the year.
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