💡 Is it time to rotate into altcoins?

GM everyone. This is 2036. We scroll for gems all day so you don’t have to.

Here’s what we’re serving up today 🍲: Dan Morehead is a crypto legend. He became a multi-billionaire by buying ∼340,000 BTC at $30. Yesterday, he explained what he thinks is happening next.

Let’s dig in.

1/ Every bull market is divided into 2 phases.

In phase 1, bitcoin outperforms. That’s because Bitcoin is the biggest brand in crypto and most investors’ gateway drug to the rest of the crypto ecosystem.

In phase 2, altcoins outperform. Altcoins are all cryptos that are not Bitcoin. And every cycle has new types of altcoin investments like ICOs in 2017 and NFTs in 2021.

Phase 1 lasts for about 60-70% of the cycle.

And in the last cycle, altcoins outperformed Bitcoin by 3X in Phase 2.

We’re still in Phase 1 today, which means that eventually, altcoins will start outperforming Bitcoin - big time.

As Dan describes it, “one of the highest sources of alpha has historically come from a perfectly timed rotation from bitcoin into altcoins as phase 2 commences.”

But here’s where it gets interesting…

The magnitude of altcoins’ Phase 2 outperformance is so large that altcoins have outperformed bitcoin across the full length of both cycles.

i.e, holding altcoins across the last cycles has yielded higher returns than holding bitcoin.

So which altcoins should you hold?

2/ Tokens with product-market fit that generate revenue will outperform.

A few months ago, we mentioned that Dan was bullish on Arbitrum and Uniswap.

[Arthur Hayes has a similar perspective and is bullish on $GMX and $UNI, too].

But Dan is also looking at DeFi on Bitcoin - notably Stacks ($STX) - which we’ve talked about several times before, and Bitcoin NFTs, which we talked about just yesterday.

3/ The top protocols are the same as in the last cycle.

In fact, the top six – which account for 83% of crypto’s market cap – are the same.

That’s because these protocols are good. Some of them got hit by leverage and bad actors (like Solana), but many terrible projects have been washed out already.

That means there’s still a lot of value in the existing top protocols.

4/ Bitcoin used to be worth the same as Urban Outfitters.

Now, it’s just overtaken Berkshire Hathaway. It’s on par with Meta.

And the trend only seems to be going one way…

So if you think you’re late to crypto, think again.

You can read Dan’s full letter here.

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1/ Solana-based Jupiter to launch token on the 31st (we mentioned this airdrop a few times last year)

2/ Ethereum’s upgrade goes live (with bumps along the way)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.