As the saying goes, “A rising tide raises all ships.” but it will also bring scum and debris along with it. When the Bitcoin market begins to see rapid price appreciation, anything remotely seen as a digital currency will likely benefit to some degree. Bitcoin (BTC) is often the market driver that increases investment in the digital asset industry.
Altcoins usually see liquidity coming in from those who feel they’ve missed the Bitcoin run, those who believe in diversifying across the same asset class for some reason, or those who are rolling into different tokens trying to chase the successive narrative-driven capital flows.
Altcoins also attract investors who fall for unit bias, feeling that if they are going to allocate $1000, for example, they’d want to get as many units of that asset as possible, while having a fraction of Bitcoin feels less desirable.
When purchasing an asset, you should avoid walking into the buying cycle using the same rationale as shopping for FMCG. Still, here we are: people base their buying decisions on their habits, and shopping for a bargain and paying less in nominal price to get more units of something is the default.
Unit bias and the digital penny stock
Unit bias is a hell of a manipulation tool, and altcoin issuers know it and have been using this method to sucker investors into the unregulated penny stock/token market for several cycles and will continue to do it in the cycles to come.
A lesson people have to learn the hard way is that price doesn’t tell the whole story of whether something is cheap or expensive. An asset can be cheap at $ 10,000, while another can be expensive at $1.
For example, Bitcoin at 10,000 dollars would have a market cap of roughly $193 Billion. Still, for Ethereum to reach $10,000, it would have to reach a record market cap of over 1 trillion, never the amount of constant capital having to flow into it to maintain that price range.
But in times of pure speculation and investors taken over by FOMO and greed, rational arguments fall on deaf ears, and the only number that matters is the price. While it can be a thrilling time for those brave enough to gamble in these markets, the phenomenon known as altcoin season is probably the most dangerous time to be in these markets.
So, what exactly is it, and what does it mean for a precoiner or newcomer?
What is Altcoin Season?
Altcoin season refers to a market period when altcoins (NFTs, coins, tokens & cryptocurrencies that aren’t Bitcoin) significantly begin to outperform Bitcoin in terms of price gains. Investors often rotate capital from Bitcoin into altcoins when they perceive a greater opportunity for higher returns by taking on more risk by engaging in these more volatile and thinly traded markets.
Alt season, or “alt season crypto,” occurs when investors begin to diversify their investments by choosing different altcoins instead of BTC, and the appreciation of Bitcoin in US dollars slows relative to the appreciation of other tokens. The search for greater profitability or rolling your Bitcoin profits into more speculative plays begins to take shape.
While there is no definitive way to state what constitutions Altcoin season, it hasn’t stopped others from formulating their own indexes, like the one by Blockchain Centre. Which tracks the fiat performance of the top 50 coins by market cap and compares them to Bitcoin.
If 75% of the Top 50 coins performed better than Bitcoin over the last season (90 days), it is an indicator that Altcoin Season is in full swing.
Why does altcoin season happen?
Several factors can trigger an altcoin season:
Market cycles
Typically, crypto market booms start with capital flowing into Bitcoin, and after some time, the market reaches a saturation point in demand for Bitcoin. It’s taking too much capital to move this market behemoth, and those bright green dopamine-driving candles are harder to come by, so you go further out the risk curve.
When a bull run gains steam, investors start to diversify, spreading their investments into smaller, riskier altcoins.
Money printing startups
When money flows into altcoins, you’ll find many VCs and developers looking to position themselves at the opposite end of the trade and serve this demand for tokens. Tokens are easy to create; they’re only metadata on a chain, they cost very little, and the arrival of new altcoins tends to speed up.
The initial phase will be technology startups with a token attached, but later devolve into narrative and influencer + token; this could be gaming, art, real-world assets or anything the marketing department can drum up after using ChatGPT to give them ideas.
Decreasing Bitcoin demand
Bitcoin demand begins to wane as the price rises past a certain point; when Bitcoin is deemed as “too expensive”, you end up with a cohort desperate for any price appreciation, feeling they missed the bus and targetting anything that is in the top 100 hoping they will hit a 10, 100, 1000x home run.
Remember, altcoin season is not about trying to build sustainable wealth and take risk off the table; it’s about taking as much risk as possible to compress your returns into the shortest payout period possible.
Bullish sentiment in the wider economy
A bullish stock market and or rate cuts can also drive overall risk-on sentiment in the crypto market and influence the popularity of altcoins. If the stock market is going gang-busters, there’s liquidity galore, and it feeds an appetite for risk and higher, which can spill over into small market cap altcoins as institutions capable of trading these markets go out and hunt for additional alpha in these grey zones.
Signs of Altcoin season
Here’s how you can spot the potential start of an altcoin season:
Increasing altcoin prices
Keep a close eye on the altcoin market for meme coins or anything that doesn’t even bother to pretend like it has some innovation behind it. When the narrative shifts from investing in altcoins for the innovation, speed and x or y feature and transitions to whatever goes up by that, who cares what it does?Â
We’re likely well into an altcoin season.
Decreasing Bitcoin dominance
Bitcoin dominance is a bit of a faulty metric since I could spin up a ponzi tomorrow, sell a few coins, claim a billion-dollar market cap, and “erode” some of Bitcoin’s dominance. But an active portion of the market believes in it, so the metric has some value.
If you start to see a downward trend, it could indicate an altcoin season forming.
Mainstream media speaking positively about “crypto”
When your normie news channels and newspapers start slapping Bitcoin, digital currency, or cryptocurrency on the front page, or it’s their trending article, it’s a late-stage bull market. These stories will normally centre around projects or investors that have made some headline-grabbing gains, with a few paid PR pieces for good measure.
All these reports end up encouraging the laggards to jump in and get hurt as exit liquidity. If you start seeing news about innovative altcoin projects or positive developments in the altcoin space, it can be an early indicator that we’re in altcoin bubble territory.
Social media influencers, sports stars and celebrity endorsements
If Cristiano Ronaldo partners with Binance to launch an NFT collection and you start to see Matt Damon call you out for not being brave by buying unregulated securities,
If you see Paris Hilton shilling monkey JPEGs, you should take that as a top signal.
Your hairdresser is buying shitcoins
The average person doesn’t care about Bitcoin; despite being a trillion-dollar asset, most people still need to take the time to learn about it; if they did, they would be stacking and holding it in cold storage.
So when I hear the average Joe speak about Bitcoin, I know the market is getting frothy. Still, when I listen to them mention shitcoins, I can set my watch to that being a top signal.
If I was degen-inclined, I could spin up a BitMex or ByBit account and go x10 short on all those top tokens and retire handsomely, maybe not handsomely, but retire nonetheless.Â
Price in sats to reduce the noise
During all season, there will be winners and losers, and maybe you’ll be one of the lucky few who make it out with a little profit, but if you are going to spend your time trying to trade these markets, I will encourage you to price all you do in Bitcoin.
As a frame of reference, for every purchase you make in an altcoin, make a note of the Bitcoin price and how many Satoshis you would have had after each one of your purchases; then, at the end of the cycle, see if you were better off with a simple buy Bitcoin and holding strategy.
If that’s not the case and you made bank, not only in fiat terms but Bitcoin terms, then you’re an elite trader. Don’t listen to me; you’ve got the skills to beat the market, so go out there and claim your prize.
Tis’ the season to be prudent
It’s crucial to remember that altcoin seasons, like any market phenomenon, don’t have definite timelines or guarantees. The cryptocurrency market is famously volatile and filled with scams, and past performance does not indicate future results. Always conduct your due diligence and invest responsibly within your risk tolerance if you plan to play this game.
It’s your money; you can do it as you please, and you’ll likely end up with less Bitcoin, but you could end up a little wiser from the experience.
You can absolutely dismiss my take on altcoins and altseason and prove me wrong by playing the game for yourself and seeing where you land. Please don’t trust me; go ahead and verify for yourself that what I say is accurate, and pay your tuition to the school of hard knocks in the process.
But speaking from experience, the best way to handle this is not to participate, stay on the sidelines, get your popcorn out and enjoy the fireworks.
