Altcoin Season Explained

As the premier cryptocurrency, Bitcoin largely dominates the crypto market with a market cap of over $1trillion. Currently, BTC alone represents nearly 50% of the overall crypto market. However, Bitcoin’s dominance changes constantly across different market cycles. 

In a bull market, there are specific periods when the overall altcoin market notably outpaces BTC’s price performance. These periods are known as altcoin season, and it’s often the most prominent time for short-term traders to make profits. 

So, what are the features of an altcoin season? How to identify it and what strategies should traders adopt during this period. This article provides a detailed guide to making the best of the next altcoin season.

Key takeaways 

• Altcoin season definition: Period when altcoins outperform Bitcoin.

• Indicators: Decline in Bitcoin dominance, price surges, increased trading volumes.

• Key dynamics: Majority of altcoins must collectively outperform Bitcoin.

• Historical trends: Often follow Bitcoin bull runs; influenced by technological innovations and market sentiment.

• Benefits: High returns, diversification, early adoption opportunities, increased liquidity.

• Risks: High volatility, liquidity issues, regulatory risks, technological vulnerabilities.

• Strategies: Diversify, conduct thorough research, monitor trends, set clear entry/exit points, use stop-loss orders, stay informed.

• Case studies: ICO boom (2017), DeFi/NFT explosion (2020-2021), Layer 1/2 solutions (2023).

Definition of altcoin season

Altcoin season or altseason is when alternative cryptocurrencies (altcoins), such as Ethereum, Solana, XRP, memecoins, etc., outperform Bitcoin. This season typically sees a surge in the prices and market cap of altcoins. 

It's important to note that altcoin season occurs only when a majority of the altcoin market collectively outperforms Bitcoin. For instance, Ethereum might outperform Bitcoin during a certain period, but if most other altcoins do not show similar performance, this cannot be termed an altcoin season. 

However, if most altcoins outperform Bitcoin and the overall altcoin market cap becomes notably higher than BTC, then it's a clear indication of an altcoin season.

Characteristics of altcoin season

• Decline in Bitcoin dominance: Bitcoin's share of the total cryptocurrency market value drops.

• Price surge in multiple altcoins: Significant price increases across various altcoins.

• Higher trading volumes in altcoins: Altcoins experience higher trading volumes compared to Bitcoin on both centralized and decentralized exchanges

• Broad outperformance: A majority of altcoins collectively outperform Bitcoin.

• Increased market cap: Overall altcoin market cap grows significantly compared to Bitcoin.

• Shifts in investor interest: Investors move funds from Bitcoin to altcoins.

• Positive market sentiment: Increased positive news and sentiment surrounding altcoins.

• Technological advancements: Innovations or updates in altcoin technologies drive interest.

• Regulatory support: Favorable regulatory news boosts confidence in altcoins.

Historical trends and patterns of altcoin season

Previous bull markets throughout the years have revealed the following key signs and indicators of altcoin seasons:
1. Cyclical nature
Altcoin seasons tend to follow a cyclical pattern, often occurring after Bitcoin has experienced significant price growth. As Bitcoin's gains stabilize or slow down, investors seek higher returns by moving into altcoins.
2. Post-Bitcoin bull runs
Historically, altcoin seasons have often followed major Bitcoin bull runs. After Bitcoin reaches new all-time highs and its growth plateaus, capital typically flows into altcoins, driving their prices higher.
3. Market sentiment shifts
Sentiment shifts from Bitcoin to altcoins during altcoin seasons. This shift is often driven by investor speculation, media hype, and technological advancements within specific altcoin projects.
4. Technological innovations
Periods of significant technological innovation in the cryptocurrency space often coincide with altcoin seasons. For instance, the rise of DeFi (Decentralized Finance) and NFTs (Non-Fungible Tokens) has fuelled recent altcoin booms.
5. Increased trading activity
Altcoin seasons are marked by a surge in trading activity and volume for altcoins. This increased activity is often accompanied by a rise in the number of new investors entering the market.
6. Bitcoin dominance drops
A noticeable drop in Bitcoin dominance is a key indicator of altcoin season. Historically, when Bitcoin’s market dominance falls below 50%, it often signals a shift towards altcoins.
7. Speculative investments
Speculative investments play a significant role during altcoin seasons. Investors tend to take higher risks on newer or lesser-known altcoins in hopes of achieving substantial returns.
8. Short-lived and intense
Altcoin seasons are usually short-lived but intense. They can result in rapid and substantial price increases for altcoins, but these gains can be equally rapid in reversing once the season ends.
9. Profit-taking and market corrections
After significant gains during altcoin seasons, investors often engage in profit-taking, leading to market corrections. This cycle of rapid gains followed by corrections is a common pattern.

Benefits of investing during altcoin season

• Potential for high returns: Altcoins often experience rapid price increases, providing opportunities for substantial profits.

• Diversification: Investing in a variety of altcoins spreads risk, reducing dependency on a single asset.

• Early adoption opportunities: Altcoin season highlights emerging projects and technologies, allowing early investment in potentially groundbreaking innovations.

• Increased liquidity: Higher trading volumes during altcoin season make it easier to buy and sell altcoins.

• Market sentiment: Collective optimism and positive market sentiment drive further investment and growth in altcoin projects.

• Technological advancements: Investors benefit from technological advancements and new use cases introduced by innovative altcoin projects.

• Competitive advantage: Early investors in successful altcoin projects can gain a competitive edge and higher returns compared to latecomers.

• Capital rotation: Gains from altcoin investments can be reinvested into other assets, enhancing overall portfolio performance.

• Broader market participation: Altcoin season attracts new investors to the crypto market, increasing overall market participation and growth.

• Hedging against Bitcoin: Investing in altcoins can act as a hedge against Bitcoin volatility, providing balance to a crypto investment portfolio.

Risks and considerations of altcoin season

Like any market phenomenon in crypto, one major risk during an altcoin season is volatility. Altcoins can experience rapid and extreme price fluctuations, leading to substantial financial losses if market conditions change unexpectedly. This volatility makes altcoin investments inherently risky and not suitable for all investors.

Another consideration is liquidity. While trading volumes may increase during altcoin season, some altcoins still suffer from lower liquidity compared to Bitcoin. This can make it challenging to buy or sell large amounts without affecting the market price, potentially leading to slippage and increased transaction costs.

Regulatory risks also pose a significant threat. The regulatory landscape for cryptocurrencies is constantly evolving, and sudden changes in regulations can impact altcoin prices dramatically. Governments may impose new restrictions or bans on certain altcoins, leading to uncertainty and potential losses for investors.

Technological risks are inherent in altcoin investments. Many altcoins are based on emerging technologies that may not be fully tested or secure. Technical failures, hacks, or vulnerabilities can result in significant financial losses and erode investor confidence.

Market sentiment plays a crucial role during the altcoin season. While positive sentiment can drive prices up, negative sentiment can cause rapid price declines. FUD (Fear, Uncertainty, Doubt) spread through social media or news can trigger panic selling, exacerbating price drops.

Finally, altcoin investments require thorough research and due diligence. The altcoin market is filled with numerous projects, some of which may lack solid fundamentals or be outright scams. Investors must conduct comprehensive research to identify viable projects and avoid falling prey to fraudulent schemes.

Strategies for capitalizing on altcoin season

Diversify your portfolio 
Investing in a range of altcoins can spread risk and increase the chances of capturing significant gains. Avoid putting all your capital into one or two altcoins. Instead, diversify across various sectors and projects to mitigate risk and enhance potential returns.
Conduct thorough research 
Before investing in any altcoin, conduct detailed research to understand the project’s fundamentals, technology, team, and market potential. Look for altcoins with strong use cases, active development teams, and positive market sentiment. Due diligence is crucial to avoid scams and identify promising investments.
Monitor market trends 
Stay updated on market trends and news that can impact the altcoin market. Use tools like social media, news platforms, and market analysis sites to track developments. Understanding market sentiment and upcoming technological advancements can help you make informed investment decisions.
Set clear entry and exit points 
Define your investment strategy by setting clear entry and exit points. Determine at what price you will buy an altcoin and at what price you will sell to lock in profits or cut losses. Stick to your strategy to avoid emotional decision-making during market volatility.
Utilize stop-loss orders 
To protect your investments from significant losses, use stop-loss orders. These automatically sell your altcoins if their price falls below a certain threshold. Stop-loss orders help manage risk and limit potential losses in a volatile market.
Stay patient and disciplined 
Altcoin season can be highly volatile, with rapid price swings. Stay patient and disciplined in your investment approach. Avoid impulsive buying or selling based on short-term market movements. Stick to your research and strategy to achieve long-term success.
Keep an eye on Bitcoin dominance 
Monitor Bitcoin’s market dominance as it can signal shifts in the altcoin market. A declining Bitcoin dominance often indicates a potential altcoin season. Use this indicator to adjust your investment strategy accordingly.
Stay informed about regulatory changes 
Regulatory developments can significantly impact the altcoin market. Stay informed about changes in cryptocurrency regulations in key markets. Understanding the regulatory landscape helps you anticipate potential risks and opportunities.
Learn from past altcoin seasons 
Analyze past altcoin seasons to identify patterns and successful strategies. Learning from historical trends can provide insights into market behavior and help refine your investment approach for future altcoin seasons.

Case studies of previous altcoin seasons

Altcoin season 2017: The ICO boom

In 2017, the cryptocurrency market experienced a significant altcoin season driven by the surge in Initial Coin Offerings (ICOs). Ethereum played a pivotal role as many ICOs were launched on its platform. This period saw substantial gains for numerous altcoins, including Ethereum, Ripple, and Litecoin.

• Ethereum (ETH): Ethereum's price surged from around $8 in January 2017 to nearly $1,400 by January 2018. The growth was fuelled by the increasing number of ICOs using Ethereum’s ERC-20 standard.

• Ripple (XRP): Ripple saw its price increase from $0.006 in January 2017 to over $3 by January 2018, driven by partnerships with financial institutions and increasing adoption of its cross-border payment solutions.

• Litecoin (LTC): Litecoin's price rose from $4 in January 2017 to around $360 by December 2017, benefiting from its reputation as the "silver to Bitcoin's gold" and various technological improvements.

Altcoin season 2020-2021: The DeFi and NFT explosion

The period between late 2020 and early 2021 marked another significant altcoin season, driven primarily by the explosion of Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs). This season saw new projects gaining immense popularity and achieving high returns.

• Uniswap (UNI): Uniswap, a leading decentralized exchange, saw its token price increase from $3 in September 2020 to over $30 by May 2021. The rise was driven by the growing popularity of decentralized trading and liquidity provision.

• Chainlink (LINK): Chainlink, known for its decentralized oracle network, experienced substantial growth. Its price rose from around $2 in January 2020 to over $50 by May 2021, driven by its critical role in DeFi applications.

• Axie Infinity (AXS): Axie Infinity, a blockchain-based gaming platform, saw its token price soar from $0.54 in January 2021 to over $150 by November 2021. The surge was fueled by the rising interest in NFTs and play-to-earn gaming.

Altcoin season early 2023: Layer-1 and Layer-2 solutions

In early 2023, the altcoin market witnessed another surge, focusing on Layer-1 and Layer-2 solutions that aimed to improve scalability and efficiency of blockchain networks.

• Solana (SOL): Solana, a high-performance blockchain, saw its price rise from $1.50 in January 2021 to over $200 by November 2021. Its growth was driven by fast transaction speeds and low costs, attracting numerous developers and projects.

• Polygon (MATIC): Polygon, a Layer-2 scaling solution for Ethereum, experienced a price increase from $0.02 in January 2021 to around $2.50 by December 2021. Its popularity grew due to its ability to reduce transaction fees and improve transaction speeds on the Ethereum network.

• Avalanche (AVAX): Avalanche, another Layer-1 blockchain, saw its token price increase from $3 in January 2021 to over $100 by November 2021. Its rapid growth was driven by its high throughput and the launch of multiple DeFi projects on its platform.

Final thoughts

To sum up, Key considerations for an altcoin season include understanding market trends, conducting thorough research, and diversifying your portfolio. Monitor Bitcoin dominance and stay informed about regulatory changes. 

Use strategies like setting clear entry and exit points, utilizing stop-loss orders, and regularly rebalancing your portfolio. By carefully navigating these factors, investors can capitalize on the opportunities presented during altcoin seasons while managing associated risks.

Frequently Asked Questions

Are we in an altcoin season?

As of 3 July 2024, we are not in an altcoin season, because Bitcoin’s current dominance is at 54%. The last altcoin season occurred in late August 2023, when Bitcoin dominance below below 49%.

What triggers altcoin season?

Altcoin season is triggered by a decline in Bitcoin dominance, positive market sentiment, technological advancements in altcoins, and increased trading volumes. Often, it follows major Bitcoin bull runs as investors seek higher returns from alternative cryptocurrencies.

How long does altcoin season last?

The duration of altcoin season can vary, typically ranging from a few weeks to several months. It largely depends on market conditions, investor sentiment, and broader economic factors. Each altcoin season is unique and influenced by different variables.