Author: Murphy, On-chain Data Analyst
On-chain Data Evaluation Model - Altcoin Season
One day, while I was in class, Xiao Chi @FC_0X0 sent me a WeChat message saying: 'There is a data point, which is the gap between the total inflow of stablecoins to exchanges and the dollar value of BTC withdrawn, meaning that the remaining potential purchasing power may have a direct relationship with the volatility of altcoins. Can we use this logic to look at the timing of the altcoin launch?'
Coincidentally, my presentation also mentioned data observations regarding the potential conditions for 'capital overflow', which corresponded to the start timing of certain large-cap altcoins. However, at that time, it was only a rough outline, and I vaguely seemed to think of some previously overlooked areas...
After returning, I organized the data and, inspired by Xiao Chi's thoughts, rethought a set of visual indicators that can effectively judge the 'altcoin season'. Below, I share my thoughts:
Altcoin Season Condition 1: Assessment of Capital Overflow Conditions
(Figure 1)
In Figure 1, green indicates whether the total scale of stablecoins inflowing into exchanges in the past 30 days is greater than the dollar value of BTC withdrawn from exchanges. If so, it means that besides buying BTC, there is also a possibility for these funds to overflow into altcoins. The higher the green signal bar, the greater the theoretical overflow value, and thus the stronger the preconditions for the initiation of an altcoin season.
From the data, it can be seen that during the periods of 2023.10-2024.3 and 2024.11-2024.12, the theoretical overflow value is the highest, which means that the possibility of generating an 'altcoin season' is higher during these two periods. Additionally, there is a small segment between August and September, but in terms of scale and duration, it is not as strong as the above two periods, and thus has relatively weaker influence.
Altcoin Season Condition 2: Capital Inflow of Mainstream Assets
(Figure 2)
Historically, BTC often leads the overall sentiment in the cryptocurrency market, followed by market confidence flowing towards other large-cap mainstream coins, and finally further tilting towards ALT. A tool to visualize this capital rotation is to use the 30-day changes in the realized market values of BTC and ETH as well as the total supply of stablecoins (as shown in Figure 2). When all three major mainstream assets show net capital inflow, it indicates that market sentiment is starting to become exuberant, and overall risk appetite is rising, which is also one of the macro necessary conditions for the start of an altcoin season.
From the data, it can be seen that during the periods of 2023.10-2024.8 and 2024.10-2024.12, the three major mainstream assets simultaneously show net capital inflows, peaking in March and December 2024. This is also the point in the current cycle where market sentiment is most FOMO-driven.
Altcoin Season Judgment 3: Positive Momentum in the Dispersion of Altcoin Market Capitalization
(Figure 3)
The data basis for determining the initiation of the altcoin season also requires a third condition, namely isolating positive momentum in the dispersion of total market value of altcoins. We need to find a period when the total valuation of the 7D SMA within the altcoin range is greater than its 30D SMA total valuation. This can represent that the valuation of altcoins is amplifying in the short term, and the liquidity flowing into altcoins is rapidly increasing.
In Figure 3, red represents the 7D average, and blue represents the 30D average; from the data, during the periods of 2023.10-2024.4 and 2024.11-2024.12, the red line crosses above the blue line, indicating that the liquidity in the cryptocurrency market begins to tilt towards altcoins, and the market capitalization of altcoins is shifting towards a positive growth phase.
Summary
The above three conditions are considered from different angles: Condition 1 represents the possibility of capital overflow; Condition 2 represents overall sentiment and risk appetite; Condition 3 represents liquidity tilt. When all three are met, it is highly probable that the altcoin season is about to arrive.
Currently, Condition 2 is satisfied, but Conditions 1 and 3 are not; hence, we can consider that the foundation for initiating an altcoin season is present, but liquidity is still concentrated in mainstream assets (especially BTC), and there is not much overflow of funds into altcoins.
However, we can also see that the 'negative overflow' in Condition 1 is slowly diminishing, which is a positive sign. Although the anticipated altcoin season may require a bit more patience, what is meant to come will come.
The content shared in this article is for communication and research purposes only and does not constitute investment advice.
