Markets, including the cryptocurrency one, move in cycles. Bitcoin loses its value and altcoins suddenly blossom, bringing in the most lucrative time of the year for crypto investors: the altcoin season.
Ironically, the long-awaited altcoin season usually doesn’t last long. But fortunately, there are ways to spot it in time.
What Is Altcoin Season?
Altcoin season, or altseason, is basically the time when money leaves Bitcoin and flows into the altcoins. It’s the time when Bitcoin’s dominance drops and altcoin dominance grows. This means, they rally, set all-time highs, and outperform Bitcoin in terms of growth percentage and gains.
Some people describe the altcoin season as Christmas for traders, as the majority of them are capable of generating massive gains if investors know the right time to enter and exit the market.
Why Altseasons Happen
Altcoin season always comes after the Bitcoin season. This is because the Bitcoin rally slowly loses potential to set new peaks, as bulls are taking their profits and shifting them into alternative currencies to further profits.
At the same time, many new investors see prices beginning to rise, and jump in so they don’t miss out. This creates a snowball effect: the higher demand pushes altcoin prices higher and higher until they burst.
However, it is almost impossible to predict how long the altseason may last, as every bull run is different from the previous ones.
How to Know if Altcoin Season is Coming
There are also no guarantees that every drop in the price of Bitcoin will turn into a season of altcoins. For an altcoin season to occur, certain market conditions have to be met.
Bitcoin’s dominance declines
The indicator measures Bitcoin’s market cap as a percentage of the total cryptocurrency market capitalization. So, if the value of Bitcoin drops, its share of the total cryptocurrency market shrinks accordingly.
Typically, when Bitcoin loses its dominance, altcoins increase their share and prosper accordingly.
Tools like the Bitcoin Dominance Index help to track the current status of Bitcoin’s dominance. There are many similar tools, but they are all based on the same model: the higher the Bitcoin dominance percentage means the bigger influence Bitcoin has on the market and vice versa.
Accordingly, the sharper the drop of the dominance, the bigger the odds for altcoins to generate higher gains during the altcoin season.
Ethereum breaks away from Bitcoin
Additionally, market participants can predict the upcoming altcoin season by Ethereum movements. ETH breaking away from Bitcoin is among the key indicators here.
Altcoins including Ether usually tend to follow Bitcoin, but not in this case. When BTC is losing value and ETH, on the contrary, is rising, this is a clear indicator that the altcoin season is coming.
While Ethereum remains the key blockchain on which the majority of DeFi applications are built, its performance acts as the driving force for the whole altcoin market.
Altcoin Season Index Goes Up
For the benefit of the crypto community, there exist handy tools like Altcoin Season Index, that help to save time and quickly check where the market is heading.
The index tracks the past 90-day performance of the 50 largest altcoins by market cap. If at least 75% of them performed better than Bitcoin, it means the market is in an altseason.
In the scale between Bitcoin and altcoin seasons, the index shows the percentage of where market sentiment is located. Crypto investors tend to use the tool to make decisions on whether they should move their funds in or out of Bitcoin.
Fear Decreases, Greed Increases
Despite all the calculations and rationality, most investors make investment decisions based on emotions and irrational behavior. They tend to get greedy when the market is rising and sell in panic when bears take the reign.
To better predict future movements of assets, some check market sentiment indicators like Crypto Fear and Greed Index. This index monitors various factors such as market dominance, volatility, volume, and even social media mentions generating a broader cryptocurrency market sentiment.
Knowing the sentiments of other investors is useful. The times of extreme fear, when many feel uncertain and worried, could be the perfect “buy the dip” opportunity. And vice versa: extreme greed could mean overconfidence and signal the upcoming correction.
Thus although the crypto Fear and Greed Index does not indicate the altcoin season directly, it helps to create a bigger picture of what to expect from the cryptocurrency market.
How to Take Advantage of Altcoin Season?
Altcoin season is one of the best times for crypto market participants to profit. Altcoins, especially those of smaller market capitalizations, rally sharply and may bring really lucrative rewards for those who enter the altseason early.
Although there are many different strategies and tactics on how to find altcoin gems before they shoot up, it is important to proceed with caution and have a risk management plan.
This means, you should evaluate what amounts of funds you will invest (position size), how much you expect to earn (profit targets), and how much of your capital you are prepared to lose (stop-losses).