I dont think comparing to an index really works as things stand. Even if one has to compare, one should calculate beta of an altcoin wrt an index and then see if one made any alpha. Alts being high beta will give you higher returns in a bull market and one will outperform an index of top 20 even if one underperformed that low market cap alt.
Comparing a portfolio to an index is still sensible. One can play with the weights to get a trur sense of one's ability.
I agree that it's not as simple as merely comparing to the "top 10" or "top 20" index holdings, I agree with your idea. What I'm advocating is to compare your trading to a variety of likely scenarios that you would have done if you had adopted a buy and hold strategy, to ensure that your trading actually makes sense over a safer investment strategy.
The stark reality is that most people do not do any better than the average performance of indices but there may exist the illusion in the mind of the trader that they are profiting simply because they are in the positive, even though they are being outperformed by a variety of simpler and safer strategies.