Most of the people in the crypto space are only focusing on bitcoin and hodl. But there is much more in the industry beyond this. There are more than 2000 different altcoins on the market at the moment and some of them presented even steeper parabolic price rise than bitcoin did.
In today’s article, we will discuss the phenomenon called altcoin season, what is it and why you need to consider it if you are dealing with cryptos.
Bitcoin vs Altcoins
In the world of cryptocurrencies – just like in the case of any asset class – you can spot several different trends. Even now, 10 years after bitcoin has been born, it is dominating the market. Its market capitalization is the biggest in terms of value, and the daily trading volume is the highest as well.
It is very common to express the altcoin’s price in BTC. This is leading also to the fact, that if bitcoin price is increasing, then the altcoin prices, which are expressed in fiat currencies, such as USD are increasing too. But if you are digging a bit in the background you can see that is you are looking at the price expressed in BTC than the value of the altcoin price is declining, so the relative strength of the coin compared to bitcoin is decreasing.
This also happens when the bitcoin price is going through a sharp decreasing period – just this time, the altcoin market is blossoming and the prices of the alts are on the rise.
What is altcoin season?
Almost all of the altcoin’s prices are relying on bitcoin. Traders refer to the period when the prices of altcoins are on the rise as ‘altcoin season’. The term is coming from prior experiences when during an extended period of time traders were able to make a lot of money from the price increases of altcoins during 2016-2017.
The way the crypto markets work in most of the time that trader shifts values between altcoins and bitcoin. This is usually the case until some meteoric rise or fall hit the market. If the bitcoin price is decreasing significantly, the traders turn to altcoins, with pushing more money into this market sector. It is also often experienced when the bitcoin prices are just moving sideways for weeks and months – leaving no real rooms for traders to make money. And again this time they turn to altcoins.
During the altcoin season, several altcoins start to gain value – regardless of the price movement of bitcoin.
Many people argue that such a thing as altcoin season does not exist at all. And there is also a very thin line between what is called altcoin season and a simple “pump-and-dump” scheme.
Opinions on altcoin season
Tom Lee, the co-founder of Fundstrat Global Advisors, believes in altcoin season. In a recent Tweet, he confirmed that the altcoin season is coming soon, and shared a post which highlights 9 small-cap coins that just started to accumulate some solid gains.
Jeff Dorman, chief investment officer at blockchain-oriented asset manager, Arca, however, says it just not worth waiting for the next altcoin season – as it may never come. He argues as the crypto market now is much more evolved by now compared to what it was in 2017. Investors can now more easily differentiate between projects that solve a real problem and can deliver a real product, compared to those that don’t.
“The sooner people stop talking about a generic “alt season”, the faster the real alts will actually rally.”
Is this pump and dump?
Not necessary. It is important to distinguish between altcoin season and pump and dump scheme as they are not supposed to be the same.
Pump and dump refers to a strategy where a small group artificially inflates the price of an owned coin through false and misleading positive statements, in order to sell the cheaply purchased coin at the highest possible price. On the stock market, such behavior is considered a fraud and strickly banned for decades. On the crypto market however there is no such clear regulation, so some smaller coins are often falling victims of pump and dump groups.
Compared to pump and dump strategy, during altcoin season not only a random coin starts to increase, but several, usually the most prominent coins gain value. This then if happening for a longer period of time can have a spillover effect on the rest of the coins leading to a general increase the value of the altcoin market.
Just bear in mind that this is the time when the pump and dump groups also start to became active and pushed the prices of lesser-known assets to the moon.
For this reason, altcoin season usually doesn’t last for long. The increase in altcoin’s value, in general, is shorter and not as high as the preceding bitcoin value increase. Still, it can be a lucrative trading opportunity.
How to trade during altcoin season?
Probably it is the safest strategy to conclude that none of the altcoins will gain value when bitcoin is either bearish or extremely bullish. During bear market, most traders cash out prior profits in fiat or just sit and wait for hodling. During an extremely bullish market, everyone is putting their last pennies in bitcoin, so not much left for altcoins.
The majority of trading is psychology. If people wake up in the morning only to realize bitcoin is rapidly falling while the rest of the market is increasing, many of them just go with the tide and it all becomes a self-fulfilling prophecy – no matter if you believe in altcoin season or not.
In the past, Dogecoin has been a good indicator when the altcoins are on the top especially when bitcoin has been moving sideways.
“Historically, whenever Dogecoin has done very well, it’s usually been a sign that we’ve reached the peak of Alt Season, as almost all other altcoins with real value have already pumped, and so traders are looking to go down to list to see if the joke coins will also pump. This means the market is closely approaching the end of a bull cycle.“
Long term traders are holding positions over a month, can diversify their portfolio during the altcoin season into various coins to see which one is accumulating wealth. The more you buy the better you spread the risk.
Short term traders can rely on technical analysis as they would do anyway. The best here is to avoid emotional decisions and stick to your strategy.
Unlike what the name would suggest, the altcoin season is not necessarily something which happens during a specific time of year. It is a market sentiment during the altcoins are perceived to carry more value than bitcoin. Be prepared so when it comes you know what to do.