Altcoin season is a crypto phenomenon that grabs the attention of investors and traders worldwide. For many investors, It is a unique period in the crypto market cycle that sees the surge of most cryptocurrency prices, excluding Bitcoin.
Amidst the fluctuating price of Bitcoin, smaller cryptocurrency projects can offer profitable investment opportunities.
In order to capitalize on such opportunities during an altcoin season, it is essential to have a clear understanding of what altcoins are, how to identify the signs of an altcoin season, and when to make strategic moves.
What are Altcoins?
To comprehend the term 'altcoin season,' we must start with the basics.
'Altcoin' is short for 'alternative coin,' and it's mainly in relation to any cryptocurrency other than Bitcoin. This term is derived from the concept that Bitcoin was the very first cryptocurrency, and all other coins are considered alternatives. While Bitcoin maintains its dominance, several well-known altcoins have gained prominence.
One of the most recognizable altcoins is Ethereum. Despite being classified as an altcoin, Ethereum boasts a market capitalization that is half of Bitcoin's. Additionally, coins like Cardano, Chainlink, and Tether, while highly valued, are also categorized as altcoins due to their distinction from Bitcoin.
Understanding Altcoin Season
Altcoin season materializes when the dominance of Bitcoin diminishes in comparison to other cryptocurrencies. Bitcoin dominance refers to the ratio between the market value of Bitcoin and the combined market value of other digital currencies.
Since Bitcoin is the largest cryptocurrency by market capitalization and has the highest trading volume, Bitcoin dominance is an important indicator when identifying an altcoin season.
In preparation for an altcoin season, altcoins typically begin to gain more market capitalization than Bitcoin. During this period, many investors may decide to allocate their funds towards altcoins or convert their Bitcoins into altcoins, leading to a decrease in the value ratio between them.
According to experts, an altcoin season typically occurs when 75% of the top 50 altcoins outperform Bitcoin in terms of market capitalization over the last 90 days.
The Blockchain Center has introduced an 'Altcoin Season Index' to track this metric. As of this time, this metric currently indicates that we are below the 75% threshold, suggesting that we are not currently in an altcoin season.
Signals Preceding Altcoin Season
Several signals can indicate the onset of an altcoin season, which can happen individually or concurrently. Some examples of potential triggers include:
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The Bull Run
A bull run in the cryptocurrency market indicates that investors are feeling positive about the future prospects of cryptocurrencies. This leads to a surge of investments in the market, causing Bitcoin's dominance to shift. Investors keep a close eye on this trend as it often precedes the start of an altcoin season.
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Hype Surrounding a Particular Altcoin or Trend
The cryptocurrency space has seen massive hype surrounding trends like DeFi (Decentralized Finance) and NFTs (Non-Fungible Tokens). During these periods, altcoins related to these trends garner attention and experience exponential market value growth. This increased interest and investment create a temporary 'hot market' for these tokens.
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Blockchain Development Milestones
Altcoin seasons often align with significant milestones in blockchain development. For instance, the announcement of Ethereum 2.0 generated substantial interest in Ethereum and related cryptocurrencies. Projects connected to trends like NFTs or Web 3/DApps also witness significant growth due to increased demand and adoption.
These trends provide lucrative opportunities for investors to explore specific altcoins during potential altcoin seasons, but it's essential to remember that such trends can be temporary and highly speculative. Therefore, vigilance is necessary when participating in altcoin markets.
Duration of an Altcoin Season
Altcoin seasons, sometimes referred to as crypto winters, can vary in duration from a few weeks to several months. The length of an altcoin season depends on market conditions and the attention garnered by the coins involved.
Coins with large and active user bases tend to experience substantial growth during altcoin seasons, while others may remain relatively stable or even decrease if they lack sufficient user engagement.
External events such as news announcements or regulatory changes can also extend the duration of an altcoin season. For example, Ethereum's transition to proof-of-stake (PoS) in December 2020 fueled ETH's rapid rise, and this development influenced smaller altcoins as investors sought alternative opportunities.
It's worth noting that altcoin seasons can also lead to extended periods of market stagnation, where prices remain relatively unchanged. Some experts recommend this as an opportune time to buy cryptocurrency, while others exercise caution due to potential decreases in the market capitalization of many coins.
The crypto market's volatile and unpredictable nature makes it impossible to predict the duration of an altcoin season accurately. Maximizing returns requires careful analysis, research, and strategic trading.
When is the Perfect Time to Buy Altcoins?
Investors looking to participate in an altcoin season should consider various factors before making investment decisions. These factors include the coin's fundamentals, market sentiment, and technical analysis.
For long-term investors, assessing a coin's fundamental value and growth potential is vital. Comparing the fundamentals of different altcoins and identifying those with solid fundamentals and experienced teams can guide investment choices.
Once the decision to invest in a particular coin is made, investors should consider current market conditions, overall sentiment in the crypto market, news events, trading volume, and more before entering the market.
Technical indicators such as moving averages, price trends, and support/resistance levels should also be considered to determine the optimal time to enter an altcoin investment.
Since cryptocurrency markets are influenced by news events and industry developments, staying updated with the latest news related to chosen coins is essential. Moreover, a basic understanding of fundamental analysis and technical indicators can help investors make informed decisions based on their strategies and goals.
How to Profit During an Altcoin Season
Predicting the end of an altcoin season is challenging, which makes it difficult to estimate when to sell altcoins. However, certain signs and strategies can guide investors:
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Set Predetermined Profit Targets
Set a predetermined percentage of profit you aim to achieve when your investment reaches a specific return. This approach minimizes disappointment if the altcoin's price drops.
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Use Technical Indicators
Utilize reliable technical indicators to assess market conditions. If multiple indicators suggest a market downturn, consider converting some altcoins into stablecoins like Tether for flexibility when reinvesting after a price drop.
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Keep Your Eyes on Parabolic Altcoins
Some altcoins can experience parabolic increases in market value during a bull run or altcoin season. History shows that such parabolic growth is unsustainable. Consider taking profits during a parabolic run to avoid disappointment when the trend subsides.
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Don't Get Too Greedy
It's common for investors to become greedy, especially when an investment reaches an all-time high. However, it's essential to exercise caution and consider taking profits, even if the altcoin season seems endless.
It is important to conduct thorough research and discover the strategies that work best for you. For those wondering if the next altcoin season is approaching, you should keep an eye on indicators.