There are all kinds of different strategies for trading and just as many different analytical tools to support these strategies. However, at the heart of all of these different approaches lies psychology. This shouldn’t come as a surprise since the one thing in common across every exchange and market around the world is us: humans. As such, in order to understand markets, one must understand psychology.
The crypto markets are no exception, and as we will see, altseason is just one more psychological expression manifesting as a market trend. But what is altseason? Here we will gain a basic understanding of the phenomenon as well as examining a few historical examples of altseason in the cryptosphere.
What Is Altseason?
Before we jump into altseason, let’s define a key term. Altcoins, or alternative coins. Altcoins are simply any crypto tokens that are not Bitcoin. Since Bitcoin was the first cryptocurrency to be developed and deployed, it has earned itself first-mover status, and the fact that every other token besides Bitcoin is called “alternative” exemplifies Bitcoin’s supremacy in the market.
So, if altcoins are tokens other than Bitcoin, what is altseason?
In the simplest of terms, altseason is just a period of time where the crypto market becomes extremely positive. Except for Bitcoin. In altseason—altcoin season—every token besides Bitcoin, experiences a major bullish trend, with these altcoins’ values increasing, sometimes exponentially. In the past, altseason has seen some tokens increase in value up to 400%, which, for anyone holding altcoins, would mean major profits.
It is worth noting, however, that outside of these sometimes spectacular bull runs, altcoins often see little gains. More often than not they stagnate for the majority of the market cycle, maintaining their price if not moving in a bearish trajectory. It is this low valuation that allows for major gains, for those savvy enough.
Relationship Between Bitcoin Dominance And Altcoins
Altseason is a reversal in Bitcoin’s dominance in the market, where altcoins see significant gains with a corresponding drop in Bitcoin’s value. In this scenario, what is Bitcoin’s “dominance”? Bitcoin’s dominance refers to its percentage of the Total Cryptocurrency Market Capitalization. This means that during periods of Bitcoin dominance, BTC makes up a higher percentage of coins held than all other tokens combined. For example, at the beginning of 2017, Bitcoin accounted for almost 90% of all the market value for cryptocurrencies.
How To Identify Altseason
During altseason, there is potential for incredible profits for anyone holding altcoins, or anyone clever enough to identify a coming trend and buy at just the right time. There are plenty of traders that hold altcoins, waiting for altseason to come around again, allowing them to make all the gains in a year in just a few short weeks, if they are lucky. However, they must have a strategy in order to fully benefit from altseason.
The idea of Bitcoin Dominance comes into play when developing a strategy to take advantage of an upcoming altseason. When traders are buying and holding BTC, its dominance increases, while altcoins’ share of market capitalization decreases. Since this up-trending BTC dominance adversely affects the value of altcoins, this is generally seen as a bad time to buy and hold these tokens.
What To Do During Altseason
So how does one make the most of altseason? Using this logic, the best time to buy altcoins would be during a drop in Bitcoin’s dominance. This slump in BTC results in a corresponding pump in altcoin prices. Historically, the steeper a dip in BTC dominance, the higher the resulting altcoin price bump. It then becomes important to identify a coming dip in BTC dominance as a signal to buy altcoins and wait for the resultant altcoin price pump.
This also can be a point where trader psychology can come into play. Sometimes, as dominance shifts, these fluctuations can trigger greater numbers of traders to jump onboard an emerging trend. FOMO, or fear of missing out, can play a big role in the minds of traders looking for new trends to capitalize on. This can lead to a snowball effect which has contributed to mooning token prices in past altseasons.
Bitcoin’s price has gone through a somewhat turbulent run in the last few months. Prices rushed up to $8,800 from $8,150 over the course of a few days, only to drop back to $8,300 in a matter of hours. Later on in the month the price dove to $6,620, a recent low point.
Some in the cryptosphere have looked to past examples of BTC price action as a lens to view this current volatility. It should be noted that past movements are not indicators of future movements; however, they can shed light on the current condition of a market. One trader stated that the 2017 altseason took place after BTC dipped from $1300 to $900. While it is true that the price charts for the 2017 dip and the recent BTC price drop do look similar, the prices of altcoins didn’t see a corresponding jump.
One reason that has been suggested is that, while Bitcoin’s price dropped dramatically, its dominance in terms of market capitalization did not cross a critical support level. Some traders have proposed that the 50% level of BTC dominance is a significant tool for predicting an upcoming altseason. If BTC’s market cap dominance dips near to, but not below 50%, they argue an altseason will not occur. This was the case in BTC’s most recent price drop: while the price dropped significantly, BTC’s dominance did not cross below the 50% threshold and altcoins did not rally.
Bitcoin has continued to grind its way back up from a recent low, and while some altcoins have seen gradual gains, there has been no discernible altseason to speak of.
Reading Between the Lines
Predicting market movements is a tough business. As we have seen, sometimes all the indicators point in one direction, but the market simply doesn’t perform in the expected way. There is no doubt that another altseason will come, but when and how dramatic it will be is anyone’s guess. All of the different tools, analysis and trader psychology provides us with a portion of a bigger picture, but in the end risk and reward can be around every corner.
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CoinMarketCap. (2019). Top 100 Cryptocurrencies By Market Capitalization. Retrieved from: https://coinmarketcap.com/
Conroy, C. (2017). How To Deal With Cryptocurrency FOMO. Retrieved from: https://vocal.media/theChain/how-to-deal-with-cryptocurrency-fomo
Frankenfield, J. (2019, June 27). Altcoin. Retrieved from: https://www.investopedia.com/terms/a/altcoin.asp