What is an ‘alt season’ in crypto?

‘Alt season’ can lead to big opportunities for crypto investors

A selection of altcoins                                 
With more than 10,000 altcoins in existence, it is expected that as the quantity of altcoins increases, so should their market share. Credit: Shutterstock
                                

Contents

As with the rise of any novel investment opportunity, the emergence of cryptocurrencies has given rise to a whole industry dedicated to satisfying demand for crypto-related content.

From market news to coin forecasts, the creation and distribution of such content has become an integral part of how retail investors engage in the sector. 

From websites forecasting whether obscure coins will rise or fall in the next decade, to crypto experts reeling off charts on Twitter, the volume of crypto-related content and the number of platforms that distribute it has exploded over the past couple of years.

Indeed, with as many as one in six Americans having invested or traded in crypto, according to a survey in November 2021 by US think tank the Pew Research Center, it is unsurprising that the demand for content and analysis on all things crypto-related has surged.

Alongside this surge in content, new ways of capturing potential trends have emerged. Despite the cryptocurrency sector being comparably new, its decade-long history allows experts to see patterns, draw comparisons and create insightful analysis.

In short, by looking at historical patterns and naming them, analysts attempt to predict future trends before they have happened. Investors who stand to either gain or lose a lot in this highly volatile market have an understandable interest in extracting as much information regarding their investment as possible.

Alt season is one of the popular terms that have been coined in an attempt to explain the ups and downs of the cryptocurrency marketplace. So what does alt season mean? And is an alt season coming? 

What is an alt season?

Simply put, altcoin season or alt season is when alternative coins outperform bitcoin. During an alt season, bitcoin’s dominance or market share typically falls, while altcoins, especially the major ones, surge in value.

Bitcoin’s dominance refers to how large the market cap of bitcoin is compared with other altcoins. Data from Trading View shows bitcoin currently holds 42% of market share. This means altcoins make up around 58% of the total crypto market value.

Bitcoin’s dominance has dropped significantly over the past year, losing 20% of market share since early March 2021, when BTC made up 62% of the cryptocurrency market.

There are several key signals which provide investors with important indications that we could be heading into a crypto alt season.

How can you spot an alt season? 

The German analytical site Blockchain Center says an altcoin season occurs when 75% of the top 50 altcoins performed better than bitcoin over the previous 90 days. These top coins, according to the site, do not include stable coins such as DAI or tether or asset-backed tokens such as WBTC.

It has been a terrible season for the whole of the cryptocurrency sector after investors turned risk-averse and the market buckled. While some coins, such as LUNA and OSMO have performed well, the market, compared to the thrilling highs of mid-2021, has suffered a dismal couple of months.

Bitcoin, despite losing 32.7% in the past 90 days, has performed 15th best out of the top 50 coins. Considering an alt season happens when 75% of altcoins perform better than BTC, we are a long way off an alt season. Indeed, according to Blockchain Center metrics, we are closer to a bitcoin season than an altcoin season. Whether there will be an alt season in 2022 remains to be seen. 

History of alt seasons

Throughout the history of crypto, there have been a handful of occasions when, normally spurred on by new developments in the sector, we have entered a fully blown alt season.

In May 2017, for example, the altcoin scene exploded as ICOs, or initial coin offerings, allowed investors to gain access to investment and launch new coins. As a result, thousands of coins emerged, some of which performed well, while many others slipped away into obscurity.

In 2020, the rise of NFTs and DeFi reinvigorated the altcoin scene, bringing a host of new coins and new investors to the scene.

Over the course of 2021, the rise of the metaverse and Web3-related crypto coins as well as the continued interest in NFTs buoyed the altcoin market. Indeed, with more than 10,000 coins now available, it seems reasonable that altcoins will take a greater market share of the crypto sector.

The pick-up in altcoins is a good indication that investors have confidence in the sector and that market conditions are favourable. Because of the relative riskiness of altcoins, even compared to bitcoin, when investors turn risk-averse it can be bad tidings for the altcoin market.

In recent times, off the back of interest rate rises, the whole cryptocurrency market collapsed, signalling the degree to which macroeconomic conditions can affect the health of the crypto sector.

Preparing for alt season

There are several patterns to look out for, that if present, may indicate an altcoin season. These include a bullish rally of major altcoins, especially ether (ETH), ripple (XRP) and binance coin (BNB).

The emergence of new trends, such as the metaverse, or new developments in Web3, could indicate a torrent of new investment and new coins, which could, in turn, lead to an alt season.

Lastly, the weakening of BTC’s dominance can be a good indication. If money is coming out of bitcoin, it is only logical that money must pour into something else. Of course, if investors are risk-off, this money could well go into more established assets such as bonds and commodities. However, if market conditions are favourable, it could well go into altcoins.

When will alt season start? 

While in mid-January 2021, it certainly looked as if we could be heading into an alt season, it now looks as if we are not. The Blockchain Center barometer stands at 29. The higher the number up to 100, the closer to alt season we are. This clearly indicates we are some way off a rush for altcoins. 

While it is unclear when an altcoin season will be coming next, or if there will be an alt season for 2022, there are certain ways that an investor can prepare for one when, or indeed if, it does come along.

This includes researching hot altcoins and examining whether they have potential in the long term. Taking the time to properly research these coins and examine the differing perspectives that experts may have on the coins will also help gain a greater understanding of whether they are suitable investment propositions or whether they are simply fortunate enough to have enjoyed good PR.

By taking time to prepare, investors will be less likely to be caught up in the frenzy or hype attached to coins which may then tank in the medium term.

Final thoughts

While looking at patterns and attempting to predict the future of the crypto market is tempting, it can also be problematic. The sector is still very new, and as such we have never experienced how coins behave when confronted by certain macro pressures.

Altcoins will rise in the long term on the provision that their proposition is perceived as valuable to society. When cheap money is floating around, an exciting potential is enough to attract investors. However, when the macro landscape changes, whether investors will keep putting huge investments into altcoins if they cannot prove their value in the immediate term remains to be seen.

FAQs 

There are plenty of cryptos that could do well in the coming year. Ether, with the second-largest market cap after bitcoin could continue to perform well, especially as investors become more and more interested in NFTs. 

Cardano, as a more sustainable alternative to ether and BTC, is a good contender. Solana and polkadot are also coins that are worth watching. 

Potentially. Some are and some aren’t. Always remember cryptocurrencies are highly volatile assets and that past performance is never a guarantee of future results. Any decision to invest should be based on your attitude to risk, your expertise in this market, the spread of your portfolio and how comfortable you feel about losing money. Never invest more than you can afford to lose.

You can buy altcoins via exchanges. While not all exchanges will offer all cryptocurrencies currently in existence, the major exchanges should offer the most important altcoins on the market. 

Further reading

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
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