The new pattern of this bull market: old coins making a comeback, inflation traps, and the generational shift of retail investors
New capital inflow, rather than capital rotation; retail investors are returning, but their focus is different.Author: Stacy Muur
Compiled by: Deep Tide TechFlow
We have finally entered a bull market, but this has also exposed some weaknesses in the economic realities of Web3.
For market participants who have been continuously optimizing their portfolios over the past few years, this bull market feels somewhat "stingy." Many newer tokens have underperformed, while established coins like XRP, $ADA, $DOT, and $ATOM have achieved remarkable returns.
Background: Performance Comparison of Old and New Coins
Historically, newer altcoins (tokens that have been around for less than two years since their Token Generation Event, TGE) tend to outperform established coins over different time periods. However, this bull market presents a starkly different trend: established projects (such as $XLM, $XRP, $ADA, $DOT, and $ATOM) have become the dominant forces in the market, while new coins have performed mediocrely.
Next, we will explore the underlying reasons for this phenomenon, its potential implications, and what it means for the future.
Analyzing Trend Changes: Key Insights
- New Capital Inflow, Not Fund Rotation
The comprehensive rise of established altcoins indicates that this trend is not driven by the rotation of funds within the crypto market. It is more likely that the market is attracting new capital, particularly from retail investors re-entering the market.
- Retail Return, but with Different Focus
With the rise in rankings of the Coinbase app and increased viewership of crypto-related YouTube content, signs of retail investor return are very evident. However, contrary to expectations that retail investors would funnel funds into high-risk memecoins, it seems that these funds are more directed towards projects that were already established in the last bull market. This may suggest that the current cohort of retail investors is older, more risk-averse, or more familiar with well-known altcoins from the previous bull market.
- Familiarity and Trust as Determining Factors
The established altcoins that have performed well in this bull market are primarily the star projects from the last bull market. This indicates that returning retail investors are likely aged between 25 and 45 and have some experience in the cryptocurrency market. They may lack familiarity with newer narratives such as DePIN (Decentralized Physical Infrastructure Networks), RWA (Real World Assets), and AI, thus preferring to choose projects they recognize.
- Impact of Generational Differences
Meanwhile, Gen Z investors (who typically encounter cryptocurrencies through TikTok or meme-driven content) have less disposable income. This may explain why, despite the return of retail investors, the memecoin market has failed to attract significant capital inflow.
- Inflation Impact
Another significant factor contributing to the underperformance of new altcoins is inflation. Relatively speaking, established coins have a higher proportion of circulating supply, so new capital is not diluted by the continuous issuance of tokens.
If you are interested in these trends, future market dynamics will be worth keeping an eye on. Will the rise of established coins change the economic landscape of Web3? How will new coins respond to these challenges? Let’s wait and see.
In the following sections, we will focus on two key factors that significantly impact market performance during the bull market: Inflation and Retail Demographics.
Inflation: The Invisible Killer of Crypto Returns
The current bull market has filled the crypto market with optimism, but it has also exposed a significant reality: inflation is quietly eroding investors' returns. For any investor hoping to gain returns in this bull market, understanding the impact of inflation on asset value is crucial.
Let’s illustrate this with some real examples:
In 2021, $SOL reached a price of $258, with a market cap of $75 billion. Today, its price remains at $258, but its market cap has grown to $122 billion. What is behind this change? The answer is: an increase in circulating supply. As supply expands, the value of each token is diluted by inflation, thus requiring a higher market cap to maintain the same price level.
Here are more similar cases:
$TAO: Although its market cap has surpassed its all-time high (ATH) of $4.6 billion, the price has not reached a new high.
$ENA: Currently, its market cap is close to its ATH ($2.12 billion vs. current $1.84 billion), but the price has dropped from $1.49 to $0.64.
$ARB: The ATH market cap in March was $4.6 billion, now down to $3.8 billion. The price in March was $2.1, and now it is only $0.8.
$SEI: The ATH market cap was $2.8 billion, while recently it was $2.25 billion; the ATH price was $1.03, and now it is $0.53.
These are just the tip of the iceberg. In fact, many tokens face similar dilemmas.
Even though "altcoin season" seems to have arrived, inflation continues to quietly undermine the potential returns of many assets. As circulating supply increases, maintaining or growing token prices requires more capital investment. For assets with a high inflation rate, investors must face a tough battle even in a bull market.
How to Tackle the Inflation Challenge
To better protect their returns during the bull market, investors can adopt the following strategies:
Research Tokenomics: Before investing, carefully analyze the project's inflation rate and token distribution plan. Focus on projects with slower supply growth or lower inflation rates.
Diversify Wisely: Prioritize projects with a limited total supply or clearly defined inflation caps, such as Bitcoin (BTC).
Assess Real Returns: When calculating investment returns, consider the impact of inflation and adjust expectations accordingly.
Inflation is not just a macroeconomic term; it is, in fact, the "silent killer of returns" in the crypto market. Understanding and effectively addressing the impact of inflation will be one of the keys for investors to succeed in the bull market.
TikTok vs. CoinMarketCap
If you are reading this article, you are likely a seasoned investor who has experienced both bull and bear markets. You may have researched various new protocols, participated in airdrop mining, and explored many emerging investment narratives. In contrast, ordinary retail investors who have just entered the market due to favorable election news or Bitcoin prices nearing $100,000 come from a completely different background and mindset.
To truly understand the behavior of these retail investors, it might help to recall your own early days in cryptocurrency. Back then, you probably only had an account on a centralized exchange (CEX) filled with token codes that were completely unfamiliar to you.
I believe that the retail investors who have recently entered the market can be roughly categorized into three groups:
Gen Z: This generation may buy memecoins due to the popularity of TikTok (typically entertaining and highly volatile tokens).
Gen X: This generation may have some crypto investment experience from previous bull markets.
Gen Y: They have been attracted to the market in recent years due to the accessibility of stock trading for retail investors, and they may have developed an interest in the crypto market.
Recently, I conducted an in-depth study of Gen Z's investment mindset. Compared to other generations, they exhibit significant differences in risk attitudes and behavioral patterns. The following descriptions may apply more to the average Gen Z investor. If you are a Gen Z reader and find this content does not resonate with you, you may be one of the exceptions.
For Gen Z, taking risks and suffering losses is often undesirable. They are more inclined to engage in low-risk activities, such as earning rewards by completing Galxe tasks, playing Hamster Kombat games, or participating in airdrop mining. The greatest investment in these activities is time rather than money, making them more appealing.
However, trading is a completely different domain. When Gen Z encounters the bull market through TikTok, they may initially perceive it as an exciting adventure. But as market volatility leads to losses, they are likely to quickly feel the harshness of reality.
In contrast, the situation for Gen Y is different. If they develop an interest in cryptocurrencies, it is likely because they have accumulated some trading experience in the stock market and have a clearer understanding of investment risks. Therefore, they are less likely to be attracted to high-risk memecoins.
Gen Y is more inclined to open CoinMarketCap, check token listings, analyze market charts, and make decisions based on data. Additionally, they typically have more disposable income than Gen Z, which makes their investment choices more rational and prudent.
Conclusion
These are my observations on the behavior of retail investors in the current market, which align closely with recent market performance. Of course, this does not mean my analysis is 100% correct, nor does it represent the only explanation.
