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 piece of data, which is the scissor difference between the total inflow of stablecoins to exchanges and the USD value of BTC withdrawn, that is, the remaining potential purchasing power may have a direct relationship with the volatility of altcoins. Can we examine the timing of the altcoin launch through this logic?'
Coincidentally, my presentation also mentioned the data observations regarding the potential conditions for 'capital overflow', which correspond to the launch time nodes of certain large-cap altcoins. However, at that time, it was just a rough outline, and I vaguely seemed to think of some previously overlooked places...
After returning, I organized the data and, inspired by the ideas provided by Xiao Chi, rethought a set of visual indicators that can effectively judge the 'altcoin season'. Here I share my thoughts:
Altcoin season condition 1: Capital overflow condition assessment
(Figure 1)
In Figure 1, the green indicates whether the total scale of stablecoins flowing into exchanges within 30 days is greater than the USD value of BTC withdrawn from exchanges. If so, it indicates that besides buying BTC, there is also the possibility of overflow into altcoins. The higher the green signal bar, the greater the theoretical overflow value, indicating a greater likelihood of the conditions for initiating the altcoin season.
From the data, during the periods of 2023.10-2024.3 and 2024.11-2024.12, the theoretical overflow value is at its maximum, which means that the possibility of generating an 'altcoin season' is higher during these two periods. Additionally, there is a short period between August and September, but in terms of scale and duration, it is not as significant as the above two periods, making its influence relatively weak.
Altcoin season condition 2: Capital inflow into mainstream assets
(Figure 2)
Historically, BTC often leads the overall sentiment in the crypto market first, followed by market confidence flowing to other large-cap mainstream coins, and finally tilting further towards ALT. A tool to visualize this capital rotation is the 30-day change of the realized market cap 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 inflows, it is considered that market sentiment begins to become exuberant, and overall risk appetite rises, which is one of the macro necessary conditions for the altcoin season to begin.
From the data, during the periods of 2023.10-2024.8 and 2024.10-2024.12, the three major mainstream assets simultaneously experienced net capital inflows, peaking in March and December 2024. This is also the point in this cycle so far with the most FOMO market sentiment.
Altcoin season judgment 3: Positive momentum of altcoin market capitalization dispersion
(Figure 3)
The data basis for judging the start of the altcoin season requires a third condition, which is to isolate positive momentum in the dispersion of the total market capitalization of altcoins. We need to find time periods when the total valuation of the 7-day SMA within the altcoin range is greater than that of the 30-day SMA. Because this can represent that the valuation of altcoins is expanding in the short term, and the liquidity flowing into altcoins is rapidly increasing.
In Figure 3, the red line represents the 7-day average, and the blue line represents the 30-day 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 liquidity in the crypto space is beginning to tilt toward altcoins, and the market capitalization of altcoins is entering a phase of positive momentum growth.
Summary
The above three conditions are considered from different perspectives. Condition 1 represents the possibility of capital overflow; condition 2 represents overall sentiment and risk appetite; condition 3 represents liquidity tilt. When all are satisfied simultaneously, it is highly likely that the altcoin season is about to arrive.
Current condition 2 is satisfied, but 1 and 3 are not; therefore, we can consider that the foundation for the altcoin season is present, but liquidity is still concentrated in mainstream assets (especially BTC), and there hasn't been much overflow of funds into altcoins.
However, we can also see that the 'negative overflow' in condition 1 is gradually shrinking, which is a positive signal. Although the altcoin season that friends are looking forward to may still require some patience, what is meant to come will come.
The content shared in this article is for communication and research purposes only and should not be considered as investment advice.
