Binance Explains Why Altcoins or Small Market Cap Cryptocurrencies have Outperformed Bitcoin, Ethereum, XRP

Binance, the world’s largest crypto exchange in terms of trading volume, is questioning or wondering why we have many small-cap altcoins (alternative coins besides Bitcoin, the flagship digital currency) that are outperforming BTC and other major virtual assets.

Binance confirms that Bitcoin surged past the $10,000 mark and is now trading well above this key psychological level. Meanwhile, Ethereum (ETH) is up more than 200% year to date, and the rest of the digital currency market is following along by also recording huge gains. 

The Binance team notes: 

“Before the recent pullback across crypto, the total market cap rose a full 100% in 2020. During the greater crypto market rally, Bitcoin dominance has dropped considerably, allowing altcoins to shine.”

Bitcoin dominance, which currently stands at 59.2% according to CoinMarketCap, refers to BTC’s share of the crypto-asset market.

As reported, Ethereum has outperformed Bitcoin by a significant percentage, with almost 3x the return on investment during the same time period. Other altcoins, like Chainlink (LINK) have done even better, as has the emerging decentralized finance (DeFi) sector.

Binance points out that DeFi managed to lead the total altcoin market cap to notably edge out even Bitcoin in terms of year-to-date gains. 

Binance adds:

“Crypto analysts refer to this change in trend as an altcoin season, and it is not uncommon to see more than 100% performance against BTC ratios on altcoin trading pairs. But as well as Ethereum and other major cryptos have performed, it is small-cap altcoins that have done the best this August.”

Binance goes on to reference data from the Weekly Report from Arcane Research, which covered the Bletchley 40 Index. As explained by the exchange, this index consists of 40 different small-cap altcoins. Notably, it has managed to perform 3x better than mid-caps, 5x better than Ethereum and XRP, and 10x better than Bitcoin (BTC).

Binance further notes that the Bletchley 40 Index consists of digital assets with a market cap ranging from $30 million to $500 million.

The exchange explains:

“By comparison, Bitcoin has a $200 billion market cap. Gold’s is $11 trillion. When market caps are larger, it takes far more capital to move the needle compared to illiquid, low cap altcoins. With a massive capital rotation going on due to so many crypto investors in profit, what little money does trickle down into small-caps, ends up resulting in a lot more ROI due to market cap alone.”

However, Binance clarifies that this doesn’t necessarily mean small-cap altcoins are a better long-term investment. These same crypto-assets, including the native tokens of established platforms like Qtum (QTUM), crashed the hardest following the historic crypto market bull run.

Many people lost their life savings because they had overestimated the performance of the digital currency market.