Altseason is one of the most popular words in crypto. Investors, traders, degens, and VCs know what it means. With BTC reaching a new all-time high in Q1 2024, altseason become trendy again. People use it as click bait to get attention and others fail to predict altseason. So, what is Altcoin season? What are the factors for an altseason and when will altseason happen?
Article Summary
- Altseason Overview: Altseason is a period where altcoins experience explosive growth, often outperforming Bitcoin significantly for a short duration.
- Key Triggers: Altseason can only happen due to several key factors such as Bitcoin reaching a new all-time high, declining Bitcoin dominance, significant stablecoin inflows, and favorable market conditions.
- Market Preparation: To prepare for altseason, monitor Bitcoin dominance, create an altcoin watchlist, research fundamentals, and allocate assets wisely to prevent FOMO.
- Challenges in Prediction: Predicting the exact onset of an altseason is difficult, making it crucial to stay informed. The worst that can happen is you don’t prepare for altseason and FOMO into the wrong altcoins exactly at the top of the market.
What Is Altseason?
Altseason or altcoin season is a term for a period where altcoins experience significant price increases and outperform Bitcoin. In an altseason, altcoins dominated the market and some will experience face-melting gains from hundreds to thousands of percent in a short period. However, this period of extreme volatility is often short-lived—lasting only weeks or a couple of months.
Altcoin season Index. Source: Blockchain Center.
In the 2021 altseason, Cardano (ADA) reached a $70 billion market cap while Chainlink did a 500% increase in 5 months. Altcoins in emerging sectors like Metaverse outperform most sectors during altseason. If we look at the altcoin season index, the 2021 altseason lasted around 5 months. In the image above, you can see the index swinging from 16 to 98 in the space of 5 months.
Since then, altseason has turned into an urban legend among traders, and those who were able to predict it gained popularity. So, how does an altseason happen?
Bitcoin and Altseason
Altseasons happen because of the trickle-down money flow in crypto and bullish conditions. This is of course highly correlated with BTC performance. Altseason happens when BTC reaches a new all-time high.
This is what happened in the early 2021 altseason as BTC gallops from $28k to $64k. Conversely, Bitcoin’s dominance dropped from 73% to around 40%. This is the ultimate fuel for an altseason. Money naturally trickles down to altcoins as people rotate their Bitcoin profit.
So, for an altseason to happen, two things need to happen to Bitcoin: reach a new all-time high and decline in BTC dominance.
When Will Altseason Happen Again?
Predicting an altoin season is incredibly hard, as shown by the past few months. Around March and April 2024, people are calling for another altseason as BTC blazes past its ATH. Since early January, altcoins have been rising exponentially. However, this was restricted to several sectors such as memecoins.
So, what happened in Q1 2024 was that money already in crypto is rotating to trending sectors. The BTC dominance chart also doesn’t indicate any downside reversal. On the contrary, the Bitcoin dominance chart has been steadily increasing since early 2024. Also, BTC has been moving sideways since May.
As previously explained, for an altseason to happen BTC needs to move past its ATH again while BTC dominance keeps falling. Volumes and inflow to crypto also need to be high to indicate new money entering the space. In addition, the 2021 altseason was supported by bullish macro conditions as a result of money printing by the Fed—A 0% interest rate period pushed by the Covid pandemic. We have yet to see all of these happening in the current market.
Triggering Factors for an Altseason
- BTC Stabilizes and Dominance Keeps Falling: The movement of Bitcoin is paramount to facilitating a proper altseason. Altseason can only happen If altcoins finally move while BTC dominance falls and Bitcoin price stabilizes.
- Stablecoin Inflow: Stablecoin inflows and market capitalization are the main metrics to judge whether new money is entering the space or not. Right now, the stablecoin market cap just reached a new all-time high but the volume on most exchanges is still low. This indicates sidelined money waiting for the right condition.
- Profit Rotation: Altseason happens because of a trickle-down effect where Bitcoin buyers are looking to rotate their profit to smaller altcoins. As seen above, money usually flows in several phases.
- FOMO: As much as we hate it, FOMO (Fear of Missing Out) is one of the fuels for an altseason. As people experience hundreds of percent profit from altcoins, the rest will feel FOMO to buy altcoins. This will lead to a widespread altcoin rally as people scramble to find “undervalued gems” and altcoins beta.
- Supporting Market Condition: Previous altseasons have been supported by a bullish global market condition. In 2021, The Fed printed money by providing a 0% interest rate and the bull market was in full swing for high-risk assets such as crypto and stock.
- Global Liquidity: One underrated aspect with a high correlation to the crypto bull market and altseason is the global liquidity index. A Bitcoin parabolic move usually coincides with global liquidity. In this period, investors and traders are in speculative mode and favor high-risk assets to seek profit. This is the perfect condition for an altseason.
How to Prepare for Altseason
Even though it is hard to predict when the next altseason will start, we can still prepare for it. If you approach altseason without preparation, the odds of being the exit liquidity to experienced traders will be very high. You need to prepare to avoid FOMO.
- Monitoring Bitcoin dominance: Bitcoin dominance will be your go-to chart for identifying altseason alongside Bitcoin price and general market sentiment.
- Create a watchlist for each altcoin sector: Having a watchlist of altcoins on various sectors will help you know what to buy instead of following the trend aimlessly. This also reduces confusion and FOMO.
- Research Fundamentals: You need to research the fundamentals of various sectors and altcoins to keep up with the changing trends. Identify which L1 has a strong DeFi presence, which sectors will most likely get the community’s attention, and monitor assets with the top trading volume on exchanges.
- DCA on high-cap altcoins: DCA-ing before an altseason means you are okay with short-term losses as the market in Q3 is currently very choppy and volatile. However, high-cap altcoins like ETH and SOL are still the safest assets relative to other altcoins.
- Allocate wisely: The “spray-and-pray” strategy of the 2021 altseason most likely won’t work in the current market. Do not spread your assets carelessly to too many altcoins. Choose carefully based on analysis and research before buying an altcoin.
Conclusion
Altseason is a highly anticipated period in the cryptocurrency market where altcoins significantly outperform Bitcoin, driven by various market factors. Understanding these factors and preparing for the next altseason is crucial for maximizing potential gains. Altseasons usually only happen near the top of the market. However, predicting the exact timing of an altseason is challenging, and careful planning is essential to avoid losses.
References
- Riley Asak, “What is AltSeason and When Could It Start?”, Coinpaper, accessed on 26 August 2024.
- “What is ‘Altseason’ & how do I make the most of it?”, Digital Surge, accessed on 27 August 2024.
- @malepocrypto, “What do we need for a PROPER ALTSEASON? We’ve seen a mini alt rally, across some of the most promising narratives. Most sectors haven’t even started their run yet.”, X, accessed on 27 August 2024.
- “What is Alt Season? How You Can Make Most of It||What is Alt Season?“, Swyftx, accessed on 28 August 2024.
- @QuantMeta, “80% of profits are made in the last 20% of the cycle. Learn how to recognize an alteason and make the most out of it.”, X, accessed on 28 August 2024.
- @arndxt_xo, “We’re seeing global liquidity start to creep back into the markets, and that’s a big deal. When liquidity flows, it tends to lift everything in its path”, X, accessed on 28 August 2024.