For the last two years, I've lived and breathed the altcoin market.
Yet, one mystery remains:
The much-anticipated 'altcoin season' of 2021 is nowhere to be seen.
Here, I'll clarify why and offer tips to optimize your altcoin strategy.
Let's start by defining 'altcoin season’.
Defintion: when altcoins outperform $BTC, soaring in value across the board.
It's a time when the altcoin market blooms, buoyed by euphoric sentiment.
Picture it like a rising tide that lifts all boats.
That's what a robust altcoin season does—it boosts nearly every sector.
The driving force? A flood of liquidity pouring into the market.
Tracing the Liquidity Flow:
Historically, this source of liquidity came from two primary sources:
1. New Inflows From Retail Via CEXs
1. Outflows From BTC on CEXs to Altcoin on CEXs
Liquidity then trickles down the MC ladder, further along the risk curve.
OGs know this dynamic well, often referring to it as the 'Path to Altcoin Season.'
Lalapalooza Effects:
The path to altcoin season was clear in 2021, but it's missing now.
I think the reason is varied, and is a result of several factors occurring in combo.
Alone, each variable isn’t powerful enough to change much.
However, when combined, and pointed in the same direction, the effects are vast.
Famous investor, Charlie Munger, describes such effects as Lalapalooza effects.
Ok, so what are the effects working in combination here?
I see several and will do my best to explain them:
1. Project Overload:
The market is awash with liquidity, but it's overwhelmed by extreme project saturation.
Imagine more boats in the ocean than the wave can lift.
Only certain areas, like AI or the SOL eco, have felt the true surge of an 'altseason.'
What was once a rising tide lifting all boats has morphed into a selective rotation game.
2. Token Dilution: A Hidden Handbrake
Token dilution, especially from token unlocks, has stifled the 2021-eske altseason.
This factor, often overlooked, absorbs a significant amount of organic inflows.
It doesn’t matter how good the tech is, if supply outweighs demand it’s hard for price to pump
These projcts have an avg. float of about 14%, with $70B waiting to be unlocked .
What happens when you combine excessive saturation with supply overhangs?
Answer = tough conditions for an altseason.
3. The Double-Edged Sword Of Adoption:
Increased TradFi adoption is a mixed blessing.
On one hand, it enhances crypto's credibility;
On the other, it floods the space with sharp minds.
More talent may seem beneficial, but it actually ramps up market efficiency.
If more smart people pivot to crypto, it’s harder to find an edge.
4. Bitcoin ETFs: A New Dynamic
Yes, you read that right.
The approval of BTC and ETH ETFs has changed the game for altcoins.
Prior to the ETFs, the primary access channel for BTC was via T1-CEXs.
This was great for altcoins, because it eased the liquidity trickle down effect.
Investors could easily pivot from Bitcoin to experiment with altcoins.
This time around, the buyers are different.
Those purchasing BTC through ETFs, face a less straightforward route to altcoin markets.
The current state of on-chain UX deserves it's own post...
5. The Perfect Storm: The Covid-19 Effect
Why was 2021 so remarkable for alts? A lot of it had to do with unique circumstances.
With lockdowns in place, both money flow and screen time were exceptionally high.
This created the perfect conditions for crypto to captivate retail investors.
Given the rarity of such conditions, it's reasonable to view 2021 as an outlier.
Everyone is still ‘intoxicated’ on the 2021 high; a carrot far, far beyond reach.
Quick Recap:
This has been a dense discussion, so let's break it down:
1. The altcoin market has shifted from rising tide to rotation game.
2. As the market sharpens its intellect, finding an edge requires more effort.
3. Project saturation, along with a substantial supply overhang, is draining liquidity.
4. The traditional path to altcoin season is broken, largely due to BTC and ETH ETFs.
Practical Takeaways:
This content covers a lot, so let's make it actionable:
1. Keep an eye on Fully Diluted Valuations (FDVs) and saturation rates.
2. Pay close attention to ETF developments and sectors with heavy institutional involvement, like RWAs.
These could have different, possibly more favorable dynamics over the next couple of years.
3. In a market flooded with altcoins, don't just look at USD values. Compare altcoin valuations against $BTC.
Holding assets with higher risk for lesser returns doesn't make sense.
Evaluating how altcoins perform against Bitcoin can provide a clearer measure of strength.
4. Work harder for your edge.
It’s not just about compounding your assets —it's about enhancing your knowledge, skills, and network.
Conclusion:
Opportunities in the crypto market are plentiful, but they demand more effort and a fresh perspective.
The landscape is changing rapidly, and success will favor those who can adapt swiftly.
Please note, this content is not financial advice but merely my personal insights.
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