What is Altcoin season and how does it affect the cryptocurrency market? And what are the signals to buy Altcoins during the Altcoin season? Today, let's explore this with BTA.

Definition

Altcoin season is a term commonly used in the cryptocurrency market, describing a period when the prices of Altcoins tend to rise and outperform Bitcoin.

Overview:

  • The term 'altcoin season' refers to a market cycle when Altcoins perform better than Bitcoin

  • An Altcoin season needs to have 'general bullish sentiment in the cryptocurrency market, leading Altcoins launching major updates, and a decline in BTC Dominance.

In this article, we will delve into what a successful Altcoin season needs.

What is Altcoin?

To understand the Altcoin season, the first thing we need to know is what Altcoin is.

The term 'altcoin' is short for 'alternative coin'. This term refers to any cryptocurrency that is not Bitcoin. The market currently has thousands of Altcoins that have been developed since Bitcoin's inception, and Altcoins will offer unique features to solve problems that Bitcoin cannot.

Each project will focus on a specific area, such as GameFi, Metaverse, NFT, or DeFi. Many Altcoins are created without any specific purpose, having no applications or features, which are referred to as memecoins.

Altcoins have many advantages over Bitcoin, easily observable as 'higher scalability, lower fees, faster transaction speeds...'

What is Altcoin season?

The Altcoin season is a period when the prices of Altcoins increase significantly and outperform Bitcoin. During this time, investors will pay more attention to Altcoins rather than Bitcoin and, of course, capital will also flow more into the Altcoin market.

The ratio of Bitcoin to Altcoin is a very important metric in market analysis. It is aptly named 'BTC Dominance'.

In the early days of the cryptocurrency market, the BTC Dominance index (btc.d or DOM) was almost 100%. However, over the years with thousands of Altcoin projects emerging, this index has decreased significantly.

With the rising popularity of Altcoins, these cryptocurrencies have collectively increased their market capitalization and surpassed the market capitalization of Bitcoin, which can sometimes signal the start of an Altcoin season.

Since Altcoins tend to perform better than Bitcoin during this phase, traders often view this as an opportunity to profit.

Additionally, the Altcoin season is often characterized by a general bullish sentiment in the cryptocurrency market, which can be driven by various factors.

What causes an Altcoin season?

Although it is difficult to pinpoint the exact causes of an Altcoin season, several factors may contribute to it. Here are three potential causes of an Altcoin season.

Decreased interest in Bitcoin

As mentioned above, the decline of the BTC Dominance index is the first signal indicating an Altcoin season is approaching. This is because traders may seek to diversify their portfolios by purchasing more Altcoins, thereby increasing the market capitalization of Altcoins.

Historically, after a significant uptrend, the price of BTC often stabilizes and holds at a high level for a long time. This can lead market participants seeking short-term profits to sell their BTC and switch to Altcoins. At the same time, high BTC prices can also be a barrier for newcomers, as new market entrants may choose lower-priced cryptocurrencies to hold more tokens.

Additionally, the launch of many new projects and updates from leading Altcoins can also generate excitement and drive higher demand for Altcoins. This is particularly true if Altcoins are launched that meet user needs, providing unique features or solutions to problems that other cryptocurrencies have yet to address.

In 2020, the emergence of decentralized finance (DeFi) contributed to a vibrant Altcoin season. In 2021, the surging popularity of NFT tokens spurred another Altcoin season. And at the beginning of 2022, the Web3 sector drove a wave of Altcoin investment.

Optimistic sentiment

A strong economy, a bullish stock market, and a general positive sentiment in the cryptocurrency market can all influence the popularity and value of Altcoins. Increasing risk appetite and higher returns in a bull market often favor even small-cap Altcoins, boosting the overall market capitalization of Altcoins.

How to know when the Altcoin season begins

With the three reasons discussed above, traders may look for the following signals to recognize that an Altcoin season may be approaching:

  • Bitcoin is enjoying a prolonged bull run: A prolonged Bitcoin bull run may prompt new buyers to switch to alternative cryptocurrencies (Altcoins), which are cheaper than BTC and allow for larger quantities to be purchased.

  • The market capitalization of leading Altcoins is increasing: Pay attention to the top 20 Altcoins. If there is an upward trend, for example, ETH, SOL, or ADA, then a broader Altcoin season may be about to begin.

  • New Web3 and blockchain trends are emerging: If new investment trends appear in the market that spark lively discussions across media and social networks (X, Telegram, Facebook), this could soon lead to the launch of new Altcoins that enhance market capitalization.

The Altcoin season may be a time when many cryptocurrency holders diversify their portfolios. Investors need to keep track of the latest news and developments in the cryptocurrency market as well as the economy in general. However, while the Altcoin season may be an exciting time to trade, remember that it is just one part of the long-term cryptocurrency market cycle.

As Bitcoin approaches its all-time high, is the Altcoin season near?

Once Bitcoin reaches a new all-time high, an Altcoin season could soon follow. At the time of writing, the price of BTC is trading at $96,600 after hitting a high of over $99,000.

Anush Jafer, head of content at Mudrex Research, shared how Bitcoin's price volatility can shape the cryptocurrency landscape and create opportunities for Altcoins to appreciate in value.

Jafer emphasizes that Bitcoin's ability to rapidly increase in value will act as a catalyst for the entire market's bullishness. He said, 'When Bitcoin reaches all-time highs, its impact on the entire cryptocurrency market is significant', indicating that Bitcoin's strength often causes a ripple effect throughout the market.

Traditionally, price rallies of Bitcoin are often followed by rallies of Altcoins, known as the 'Altcoin season', during which Altcoins attract attention and bring new capital into the market.

Some analysts note that when the BTC price reaches an all-time high, there will be a moment of price correction and consolidation, at which point capital will shift to Altcoins.

According to Jafer, Bitcoin's growth can trigger the Altcoin season because Altcoin prices often respond to Bitcoin's performance. 'When Bitcoin accelerates, it can spark new interest in Altcoins, especially those with unique technology or specific use cases,' he said.

Jafer says that projects related to DeFi, Layer2 solutions, and GameFi... could attract attention in the upcoming Altcoin season.

Two factors will influence the market

There are two main factors that will directly impact the market: Institutional interest and regulation.

The increasing interest of institutional investors in Bitcoin is very positive; it not only proves Bitcoin and cryptocurrency as a safe investment channel but also shows that institutional investors are increasingly considering Bitcoin for their portfolios, a move that indicates new capital flow is entering the market and boosting investor confidence.

Jafer explains: 'The participation of institutional investors can help sustain Bitcoin's price, and combined with favorable legal developments, this can create a positive environment for Altcoins to thrive.'

Donald Trump's recent announcement to facilitate the growth of the domestic cryptocurrency market has encouraged many institutions to enter this field.

Jafer says that government support and regulatory clarity surrounding digital assets could attract new investors into the cryptocurrency space. As global regulators increase their focus on cryptocurrency, the market remains both cautious and optimistic. Supportive regulations could mitigate risks for Altcoins, attracting hesitant investors due to legal uncertainties.