Altcoins may have more room to rally than bitcoin after President-elect Donald Trump — styled, this time around, as a crypto booster — returns to the Oval Office, industry participants say.
The term altcoins typically refers to cryptocurrencies with smaller market capitalizations than bitcoin. They are likely to benefit more from a friendly regulatory environment for digital assets, noted Samir Kerbage, chief investment officer at Hashdex.
Crypto bulls are hoping that the new administration would roll out more digital assets-friendly policies, as Trump, whose inauguration is scheduled for noon on Monday, received endorsements from several key figures in the digital asset space during his campaign and said he would nominate former U.S. Securities and Exchange Commission member Paul Atkins, who is considered pro-crypto, to serve as chair of the securities regulator.
“Bitcoin has always had that regulatory certainty, while altcoins have never had that regulatory certainty,” Katherine Kirkpatrick Bos, general counsel at crypto infrastructure company StarkWare, said in a phone interview.
The current SEC chair, Gary Gensler, who will step down on Monday, has said that bitcoin is the only cryptocurrency he would label a commodity , instead of a security. Meanwhile, the SEC has named several other cryptocurrencies, such as XRP XRPUSD, Algorand ALGOUSD, Polygon MATICUSD, Axie Infinity AXSUSD and Filecoin FILUSD, as securities in its lawsuits against multiple digital asset companies.
Securities are primarily regulated by the SEC, while the U.S. Commodity Futures Trading Commission regulates commodities. Commodities are usually subject to less stringent rules than securities.
The regulatory uncertainty around some crypto assets has deterred some institutional investors from investing in them, Kerbage said. If there’s more clarity on the classification of cryptocurrencies other than bitcoin, investors might feel more comfortable allocating funds to them, potentially pushing up their prices, Kerbage added.
Still, it’s important for investors to exercise caution when considering investing in altcoins, as altcoins’ potential use cases, utility and credibility vary, noted StarkWare’s Bos. “Some could just be scams,” Bos said.
It’s also unclear to what degree Trump, who called even bitcoin a scam during his first White House term , might deliver on promises to the crypto industry and what the new regulatory regime might look like.
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Additionally, while most cryptocurrencies are highly volatile, altcoins tend to see even higher volatility than bitcoin, noted Powell, while they also face more limited liquidity than does bitcoin.
One more possible catalyst crypto-market participants are hoping for is an approval of exchange-traded funds investing in altcoins under a Trump-led executive branch, said Sidney Powell, chief executive and co-founder of the decentralized lending platform Maple Finance.
Regulators have only greenlighted bitcoin and ether ETFs in the U.S. so far. Several asset managers, such as Grayscale, Bitwise, VanEck, Canary Capital and 21Shares, have submitted applications for Solana SOLUSD and XRP XRPUSD ETFs.
While bitcoin is also likely to benefit from the potential pro-crypto policies in the U.S., especially if Trump pushes forward his promise to build a strategic bitcoin reserve, “it takes a lot more buying activity to move the needle on bitcoin, whereas altcoins have much lower market capitalization now,” Powell added.
What signals to look for
To confirm a so-called alt-coin season, or a period in which altcoins consistently outperform bitcoin, the bitcoin dominance level has to break below its support at 57.3%, as that largest cryptocurrency hovers around the $100,000 milestone, said analysts at crypto trading firm QCP Capital. Bitcoin dominance, which measures bitcoin’s market capitalization to that of the total crypto market cap, sat at around 57.6% Friday afternoon.
Bitcoin traded at around $104,337 late Friday, roughly 3% away from its record high of $108,309 reached on Dec. 17.
Meanwhile, the so-called altcoin season index, which was published by the BlockchainCenter and measures whether altcoins have outperformed bitcoin over a 90-day period, sat at 55 Friday afternoon. It would signal an altcoin season if the index stays above 75 for an extended period, noted analysts at BlockchainCenter.
