Usually in bull markets, the “high beta”, riskier securities outperform. This is what we saw over the last 7 months. Bitcoin rallied impressively, but was dramatically outperformed by the more volatile and more speculative Ethereum, which was itself outperformed by some of the even more speculative and smaller cryptocurrencies. The tail end of such rallies are often “junk rallies”, with the strongest gains accruing to the fundamentally least attractive securities.
But this pattern doesn’t always hold true, and I think we’re about to see the exception. I think we’re likely to see a strong cryptocurrency rally that’s led by a handful of high market cap cryptocurrencies. For a historical analogue, consider the “Nifty Fifty” in the 1960s and 1970s. Institutional investors became enamored with about 50 growth stocks that came to be viewed as “single decision” stocks. People felt they could buy those equities with confidence they were both safe and high performing assets. That belief becomes self-reinforcing for a time – as money flows in and people buy every dip, the securities do indeed look both very stable and very lucrative.
Which securities are the cryptocurrency “Nifty Fifty?” Consider where institutional and retail money can flow most easily. Look at the cryptocurrencies offered by Coinbase, Gemini, and the investment trusts offered by Grayscale, and the equivalent companies in Asia. Look at the most liquid, most stable, and oldest cryptocurrencies, the ones that would be most appetizing to, say, a Family Office that wants to broadly invest in cryptocurrency in as passive a form as possible. What cryptocurrencies can most easily be thought of as “established”?