Alt season is a phase of the cryptocurrency market cycle when tiny altcoins make astronomical gains. Sometimes the coins moon all at once, and other times consecutively over a month or two. Learning how and when this lucrative season occurs can help you make the most of the volatile crypto market.
It’s alt season
But the one you bought
That ones droppin’
— Tom Dante (@Trader_Dante) April 7, 2019
Much like an old oak tree supports thousands of organisms, bitcoin sustains the diverse cryptocurrency ecosystem. In the shade of its mighty trunk, thousands of altcoin saplings have sprung up. Some are forked from the Bitcoin codebase, and others are completely original, but none of them have as large a market capitalisation as the king of the forest. The most successful large-cap coins—Ethereum, Litecoin, and XRP—are followed by mid-cap coins like Monero and EOS, and eventually hundreds of tiny altcoins with very small market capitalisations.
When fresh funds are poured into the crypto ecosystem, they tend to flow first into trusted large-cap coins like Bitcoin and Ethereum that are most trusted and widely available. This influx causes bitcoin dominance to rise.
What is bitcoin dominance?
Bitcoin dominance measures Bitcoin’s market capitalisation in relation to the broader cryptocurrency market capitalisation.
Once bitcoin dominance has risen and the price of bitcoin is consolidating, the ecosystem is ready for the next stage of the market cycle.
The key sign of an impending alt season is falling bitcoin dominance. Traders start to recycle winnings Bitcoin and Ethereum into smaller altcoins in what is the equivalent to gamblers taking a chance on the roulette wheel after a big poker win. As a result, bitcoin starts to lose its share of the market.
Because smaller cap coins have very low levels of liquidity, even small buy orders can cause prices to pop upwards, leading to bright green candles all over the charts.
Just like with the seasonal cycle, the intensity of each alt season varies. The market might experience a very intense alt season, like we saw when alts popped after the bitcoin bull run in January 2018, or just a mild one after a minor bitcoin rally.
The flavour of the alt season can also be impacted by trends. In January 2017, ICO tokens were all the rage, and the recent altcoin buying spree of July 2020 has focused around DeFi.
When the hype has faded away, altcon prices will return to the mean, until eventually the market cycle will begin again.
But while skilful traders might be #stackingsats with big altcoin wins, newer traders will typically not know when to sell and will be left holding the bag.
While bitcoin has always recovered from its bear markets, altcoins have a habit of fading into obscurity as progress stalls and development teams abscond. Just take a look at Namecoin, Peercoin, and Feathercoin, that once graced the front page of CoinMarketCap but have since fallen into oblivion.
Summary: Altcoin Season
- Funds flow into bitcoin and the price moves up
- Bitcoin trades sideways as it digests the gains
- Bitcoin dominance sinks as traders bet bitcoin winnings on altcoins
- Altcoins pop! Large-cap coins usually move up first, followed by mid-cap and small-cap coins.