What's Wrong with Bitcoin?

As a cryptocurrency brokerage we are often seeing new clients come to us for alts.

Hello, I'm new to Stormrake, can you buy Shiba, Akita, Dogwifhat, Kira the injective cat or HarryPotterObamaSonic10Inu Coin?

While its true that we can service a very large set of coins the question has to be asked - What's wrong with Bitcoin?

Diversification in Crypto

Do investors seek alt-coins because they want Diversification?

Warren Buffett himself is famously quoted saying, "Wide diversification is only required when investors do not understand what they are doing". For Buffett every investment needs to be thoroughly researched and understood. Once you have conviction it is ok to have an outsized position in a single asset that you actually understand. He was also quoted as saying "Diversification may preserve wealth, but concentration builds wealth". If you are trying to build wealth then diversification may actually be preventing you from having a chance of reaching that goal.

In the context of crypto there are over 14,000 coins but Bitcoin is worth over 50% of all the top 125 coins. Effectively it is the majority of the market on its own. If you follow classic diversification over 50% of your portfolio should be bitcoin.

Bitcoin leads the way and the rest follows. The whole point of diversification is bringing together assets that act differently at different times (Negative correlation). However, in an environment where the other coins are just following Bitcoin you may be just increasing risk by adding high volatility altcoins.

Overall, diversification is not a great reason to be collecting altcoins.

There is enough data and information for even the newest crypto investors to understand that when Bitcoin is in a bull market, altcoins have experienced a greater rise. However, when the tide turns and Bitcoin faces a downturn, the ripple effects are felt far more acutely across these altcoins. Altcoins are considered to be leveraged bets on the performance of Bitcoin.

Over a Decade on, Bitcoin Still Reigns Supreme

The rise and fall of projects claiming to be ‘BTC killers’ serve as cautionary tales against betting on anything other than the proven resilience of Bitcoin. The chart above shows the performance of over 2400 coins between 2010-2020. The main takeaway is that Bitcoin (black line) continues to grow whilst altcoins struggle to last more than a couple of cycles and more often than not, become worthless (as shown by majority of the coloured lines converging at the horizontal red line). Time and again, we hear about the ‘next big thing’, it is rare these coins become a cornerstone of the crypto space. People have made millions in these alt coins. However, we've witnessed the hype surrounding these alt coins dissipate, leaving the majority of investors disillusioned, left holding coins that were once worth something but are now worthless and regretting not rotating their profits into Bitcoin.

Ethereum is often hailed as Bitcoin's chief rival, ‘the one to flip Bitcoin’ and claim Bitcoin’s number one spot. Ethereum has been revolutionary in the crypto space through introducing groundbreaking concepts such as smart contracts and decentralised applications. However, It’s held back by scalability issues and network congestion that seem to be ongoing through the countless ‘upgrades’ and the nearly decade it has been around. Furthermore, Ethereum lacks the scarcity that underpins Bitcoin's value proposition, casting doubt on its long-term viability as a store of value. Then there is the centralisation issues, a topic worthy of its own article

The Allure of Altcoins

As the cryptocurrency world continues to grow everyday with new coins, new investors and new money entering the space. Bitcoin remains the benchmark for the entire industry. So why venture elsewhere? Especially for those new investors who are yet to grasp the nuances of this emerging asset class, the rationale behind exploring alternative cryptocurrencies doesn’t make sense. For a lot of people, the allure of crypto is the potential to make ‘quick and easy money’. New investors want to make a quick 100x by buying into the latest fad that some online influencer has promoted. However, veterans and mature traders understand that when something is too good to be true, it usually is and their warning signs start flashing.

As for the allure of altcoins, investors are drawn to the prospect of quick profits and speculative trading opportunities. Others are enticed by the promise of revolutionary technologies or visionary founders. However, amidst the frenzy of the crypto ecosystem and the enticement of making a quick buck, it's vital to keep a clear understanding of Bitcoin's unmatched value proposition.

Over the last 12 months we have witnessed the beginning of a bull market as the crypto market saw itself more than double in market cap reaching just over $2.2 trillion USD. As we know, when crypto markets rally, altcoins should outperform BTC. At the previous cycle, during the peak of the crypto space, 85 of the top 100 coins had outperformed Bitcoin. However, things were different over the past year, with only 29 of the top 100 cryptocurrencies outperforming Bitcoin. This is incredibly disappointing news to those who chose to hold altcoins rather than Bitcoin. As the crypto space grows, Bitcoin continues to mature, become more mainstream and recognised by traditional institutions, it will get harder for altcoins to outperform Bitcoin.

At the heart of the matter lies a fundamental truth: Bitcoin's dominance in the crypto space is here to stay. Since its inception, Bitcoin has consistently held the top spot in the industry and shows no signs of relinquishing its position anytime soon.

The table above shows Bitcoin's Compound Annual Growth Rate (CAGR) vs other major investments. Bitcoin continues to show why it has been the number one investment performer over its lifespan with an average return of 155% p.a, whilst Gold has only returned 7% over the same 14 year period.

This proves that the accumulation of Bitcoin is one of the most rewarding investments. To receive the full benefits of Bitcoin's CAGR, one should continue to accumulate BTC over the years regardless of the price. By doing so, one is likely to be rewarded and greatly outperform all alternative investment options.

In conclusion, the case for Bitcoin as the premier cryptocurrency is clear and compelling. By consolidating investments in Bitcoin, investors can navigate the volatile crypto market with greater confidence and stability. As Warren Buffett stated, “The stock market is designed to transfer money from the Active to the Patient.” Similarly, in the realm of cryptocurrencies, patience and prudence, anchored by Bitcoin's proven track record, are the keys to long-term success and wealth preservation in the crypto space. So let me ask you, what is wrong with Bitcoin?

Create a brokerage account today

Reach out to us at Stormrake for further market insight and allow us to help you navigate the sea of mania and laser-eye memes, so that you can realise your goals in the market!

No Advice Warning

The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

Disclaimer

All statements made in this newsletter are made in good faith and we believe they are accurate and reliable. Stormrake does not give any warranty as to the accuracy, reliability or completeness of information that is contained here, except insofar as any liability under statute cannot be excluded. Stormrake, its directors, employees and their representatives do not accept any liability for any error or omission in this newsletter or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided in this newsletter is owned by Stormrake. You may not alter or modify this information in any way, including the removal of this copyright notice.