If you’ve spent even a little time in crypto, you've heard people talk about Bitcoin dominance and “TOTAL2/TOTAL3” trading charts that capture the altcoin market. You're probably familiar with terms like total value locked (TVL), fully diluted value (FDV), and market cap.

Those metrics work fine for getting a sense of perspective, but they're not useful for picking altcoins. Read this article for some other ways to approach the speculative, volatile altcoin market.

The data misses a lot of details

Crypto people have created tens of thousands of altcoins. They each have different tokenomics, goals, uses (or lack thereof), emissions policies, lock-ups for insiders, staking policies, validator/miner rewards . . . I could go on. There’s just too much diversity for a single chart or metric to capture.

In any event, nobody knows what metrics matter for performance. All usage is speculative. The field of tokenomics has only just started.

For example, FDV.

This metric includes tokens that have not come to market. Each protocol releases new tokens at a different rate. For some altcoins, FDV counts tokens that won't exist for another ten years or more. Are you sure that matters for the decisions you make today?

TVL includes lots of fake and inflated data. For example, Solana had a huge TVL before FTX collapsed. It turns out most of that value came from SBF and his friends. It was fraudulent. The blockchain captured the assets correctly, but the assets themselves were fake, created out of thin air.

What about the number of transactions? Surely, if there's a lot of activity on the network, that altcoin must have adoption and usage, right?

Maybe, maybe not. Some protocols use many small transactions to complete a single action. Other protocols wrap a lot of actions into a single transaction. How can you compare without knowing all of the idiosyncratic differences between those protocols?

Skew to the top

Bitcoin dominance and total altcoin charts measure market cap. As a result, altcoins with larger market caps have more influence on the chart.

Why is this a problem?

Most of the biggest altcoins will lag the overall market, but they make up a big chunk of those metrics. Even among the top 15, most look like slivers compared to bitcoin and Ethereum on a pie chart.

Those are just the biggest altcoins on earth! They don’t include the 30,000 smaller ones!

Only 6 altcoins from 2013’s top 100 stayed in the top 100 through December 2017. Of the 26 altcoins that stayed in the top 100 from 2017 to 2021, 21 slid down the list and only 14 ever made it back to their 2017 prices.

Not good odds.

Most big altcoins will lose to new ones. The charts hide those new winners and showcase the losers. If you wait for these charts to turn bullish, you’re too late. You're waiting for a shift in sentiment towards dead, old, or bloated altcoins that will probably not deliver the 100x your favorite YouTuber promised you.

Eschew the skew

Instead of looking at market-wide charts, think about different ways that you can look at bitcoin dominance.

For example, I have a chart that strips out Ethereum and the largest stablecoins from the Bitcoin Dominance chart (BTC.D), with some tweaks to the way TradingView displays the information.

When you use this chart, you get a different story than you get from BTC.D. It’s a story that more closely matches the truth about how smaller altcoins perform. The story:

(You can bookmark the chart. Just keep in mind, I may take it down or change it.)

Bitcoin dominance includes ETH, USDT, and USDC—a huge chunk of the market that doesn’t have any relevance to the specific strategy I follow (more on that below).

Price charts don’t capture your return on investment

Traders look at price charts because they're trying to make money buying and selling. That's not the only way to make money from altcoins.

You can also get rewards from staking, delegating, depositing into liquidity pools, validating transactions, running a node, mining, and contributing to the network. When you trade, you give up those rewards for more of your government's money.

As an alternative to price charts, factor in what you get when you own a stake in these financial networks.

For example, CTSI, one of the altcoins in my altcoin reports. It’s down against Bitcoin. See the price chart since 2022:

Looks bad.

Did you remember to add rewards from delegating to validators? If you ran a node, did you include those rewards in your calculations? My tokens get roughly 20% annual yield, compounded over several years.

The price chart doesn't show any of that. My stake continues to grow, the gains compound, and traders don’t get any of that. They just get the price.

A good way to approximate the actual real-world consequences of those rewards?

Market cap. It’s not a perfect proxy but it imputes the value of rewards and what people do with those rewards. You can get a better sense of how your altcoin’s network is growing relative to bitcoin.

Let’s stick with CTSI as our example. Look at CTSI’s market cap against BTC since 2022:

Its market cap has paced bitcoin. Up sometimes, down sometimes, within a horizontal range.

At the same time, you’re getting 20% more tokens each year (on top of the 20% extra tokens you got last year and the year before), while also subsidizing the validators who maintain and grow the network.

Your gains are not “the” gains

If you bought CTSI when I published the report in September 2020 and staked from the moment the protocol enabled staking, you’ve had about three years to recycle rewards for more rewards, similar to how you collect compound interest on your savings.

That's a 70% bonus on top of a token that went up 300% over that time. If you spun up a node and validated transactions, you did even better.

When you combine the rise in CTSI’s price with your staking rewards, you’re now earning your original investment every year and you benefit from future growth. No price chart captures those gains.

A few winners to justify HODLing losers

You need the CTSIs because most other altcoins will not succeed.

Take Streamr (DATA), for example. Another one of my altcoin reports.

Great project. With time, DATA tokens may prove more valuable than BTC or CTSI, but not as of this post.

DATA tokens haven’t done so well. Straight down against bitcoin, worse against US dollars. Even after you account for rewards and market cap, it’s down a lot.

You hope CTSI keeps doing well so you can justify your investment into DATA.

Basic truths

You don't need to win with every altcoin. Most of the time, you won’t. Some ideas that might help you:

New/small beats old/big. Historically, the biggest winners come from two places:

1. Smaller projects that have lots of room to grow.

2. New projects that either just launched or will launch in the coming months.

It's not that these projects are more likely to succeed than the big and old projects. It’s that when the small ones succeed, you get a much bigger gain than when the big ones succeed.

That outsized gain is the only reason to buy altcoins. It’s hard to get 100x from a protocol that’s already worth $1 billion. It’s not as hard to get 100x from a protocol that’s 100x smaller.

Big is not safe. Few altcoins stay in the top 100 from one peak to peak. Even fewer have any practical utility beyond speculation. They’re all experimental and you can’t know for sure where all the vulnerabilities lie.

That will change eventually. Not yet. As such, the big ones are just as likely to fail as any legitimate small or new altcoin. Plan accordingly.

From the end of 2022 into the beginning of 2023, I reviewed the top 100 coins at that time. The list has already changed quite a bit, but you can get my thoughts in my list.

Try my quadrant strategy. If you want to get very tactical, use this quadrant chart to help your decision.

Here’s how to use it:

1. Pick your timeframe. For example, the weekly chart for a multi-year timeframe or the daily chart for the next few months.

2. Pull up the charts for bitcoin dominance and bitcoin’s price on that timeframe.

3. Find the box that matches in the chart.

4. Do whatever the box says.

(Within each box, the best option varies with market conditions, your personal goals, and the tax implications of your actions.)

Try my portfolio strategy. Aim for small altcoins, allocate more to the winners when the market crashes, and let the losers die or go to zero. Take the losers as a tax write-off and HODL the winners until you need to sell them.

That way, your gains can go up forever and your losses will reduce your taxes. You might even get a chance to sell your losers for a big gain during altseason, if we ever get one.

Read my portfolio strategy for more on this.

Compare = despair. Don’t compare your portfolio with others or any of the BTC dominance or aggregate charts you see thrown around the internet.

The entire market goes in whatever direction bitcoin goes, but not every altcoin at the same time or same pace. A lot can change from one week to the next.

Nobody knows which altcoins will win or lose. Sadly, you won't get a clue from looking at charts and metrics. Appreciate what they tell you and recognize that they fill in only a small piece of the puzzle. It’s up to us to find the missing pieces.

Dig into the project. Join the community. Look at the token structure, how the protocol uses the token, how the community has grown around the project, and all sorts of other “subjective” measures of value.

It’s possible those “subjective” measures are more relevant than anything you’ll find in the metrics.