Altcoins can be interpreted as alternative coins. These are all cryptocurrencies except for Bitcoin, and when their season comes - altseason, many of them can grow by hundreds and even thousands of percent.
In this article, we will figure out
What types of altcoins exist?
What to pay attention to when buying altcoins?
What is "altseason" and how to determine its onset?
Altseason is largely a psychological phenomenon. We recommend reading this amazing trader psychology spin-off in your free time. But for now, let's delve into altseason and altcoins.
What are altcoins?
Altcoins are all coins except for Bitcoin. Historically, BTC was the first to appear on the market, and other coins followed, hence the name "alternative". Technically, the entire industry is based on Bitcoin: if it falls, usually altcoins fall with it. Bitcoin is a measure of market stability, and the average temperature in the crypto industry depends on its fluctuations.
Some of the loudest alts on the market are DOGE, ADA, XRP, LUNA (unfortunately known in a negative light), and of course ETH. The first altcoin in the history of the industry was Namecoin (2011). The token is still alive, although it no longer shines as brightly as it used to.
Altcoins can be conditionally divided into:
Stablecoins: tokens tied to the value of fiat currencies (USDT, USDC, BUSD);
DeFi tokens: used in applications related to decentralized finance (UNI, 1INCH, CRV, AAVE);
Fan tokens: tokens of sports teams, F1 racers, musicians, etc.
Meme coins (DOGE, SHIB);
PoW alts: coins that use the Proof-Of-Work protocol for their operation (LTC, ZCash, XMR, ETC);
Staking coins: using the Proof-Of-Stake protocol (NEAR, ADA, AVAX, ATOM, etc.).
And this list of altcoin types is not exhaustive. Now let's see why alt season occurs and how not to miss it.
Altcoin season: reasons and impact on the market
Altcoin season is a period of time when altcoins grow faster than Bitcoin. During this time (often short), altcoin investors can make a larger profit. One analogy is the flower business: its owners can reap all the annual profits on just Valentine's Day and International Women's Day.
Altcoin season occurs when Bitcoin has already shown significant growth and investors begin to transfer their profits from BTC to other coins to maximize their profits. Due to the large influx of capital, altcoins begin to "shoot" - showing significant and intense growth.
How to understand that altcoin season has started
Everything has already been thought out for us. There are special services that provide metrics for altcoin seasons. By using them, you can understand that it has already "started" or is about to start.
Bitcoin dominance
The Bitcoin dominance index is the percentage of BTC's market capitalization compared to the total cryptocurrency market capitalization. The higher the index, the more money is in Bitcoin compared to all other altcoins, and vice versa. Here is what Bitcoin dominance has looked like from 2014 to today:
As seen on the graph, Bitcoin started losing its position sharply from 2017. Technically, the current altcoin season has been ongoing since April 1, 2021, when the Bitcoin dominance index dropped below 50% (a key value that indicates the onset of an altcoin season). In fact, since August 9, 2022 (according to the altcoin season index).
Altcoin season index: how it's calculated and what it means
The altcoin season index is perhaps the simplest way to find out if we are experiencing a season of alternative coins or not. It looks like this:
At the same time, the value "8" does not relate to the distribution of capital: it means that 8% of altcoins have grown more than BTC in the last 90 days. If the value reaches 75% or higher, then we are experiencing an altcoin season. If the value drops below 25%, then it is a Bitcoin season, when money flows back from altcoins to Bitcoin.
What to consider when choosing an altcoin
When choosing altcoins for trading, we recommend paying attention to the following indicators:
Market capitalization: if a project is currently valued high, that's not everything: it's worth paying attention to historical metrics - has the market capitalization fallen before? If so, demand for the token decreases. You can check the metric on coinmarketcap on the page of a particular coin.
The technology behind the project: developers of hundreds of projects that appeared after Bitcoin don't come up with anything original, only a few solve real problems. For example, Ethereum solves the difficulties that Bitcoin faces: it is more energy-efficient and its market capitalization grows faster than that of "Grandpa". All of this costs money, which users pay in the form of "gas" - a commission. In turn, Polygon solves the problem of high Ethereum fees - and so on.
Project goals: a project with a clearly defined goal and implementation plan is a good sign.
Study the project team: if it is anonymous, it should at least be a cause for concern. In addition to the team and its leader, the project should have a strong community: the more it shines in the media, the better for investors.
Tokenomics: no less important factor when choosing a coin is tokenomics. You should find out how many coins are in circulation, how many more will be released, and when they will be released. For example, if only 10% of the total coin issuance has been released, the release of new coins in the future will put more pressure on the price than if the coin had already issued 90% of its issuance.
In addition to all of this, you also need to track the daily trading volume. By the way, create accounts not only on Binance but also on less well-known exchanges. For example, the Play-2-Earn token GMT initially appeared only on Huobi, Gate.io, and several other exchanges with lower turnover.
Which coins grew the most during past alt seasons
Let's take one of the brightest alt seasons of the past years - 2021, here are some top gainers:
Gala (GALA) +10891.26%;
Axie Infinity (AXS) +10598.52%;
Solana (SOL) +7998.67%;
Fantom (FTM) +7155.14%;
Polygon (MATIC) +6805.13%;
Rari Governance Token (RGT) +5491.43%;
Terra (LUNA) +5071.23% (well, it was there);
Dogecoin (DOGE) +3855.02%;
PancakeSwap (CAKE) +2963.16%;
The Sandbox (SAND) +1896.16%.
*Data taken from coinmarketcap.
The alt season of 2021 lasted until June and was the longest since 2017. In 2017, the golden period of alts lasted from April to July, and the alt season index remained at the 100 mark for a long time.
Conclusion
Alt season is a market condition when altcoins show rapid growth.
Altcoins, or "alternative coins," are all cryptocurrencies except for Bitcoin. Yes, Ethereum is also considered an altcoin.
The main indicator of alt season is the weakening of Bitcoin's dominance. You can check this metric using a special service (see above).
The reason for alt season is that capital flows from Bitcoin to altcoins when investors try to lock in profits.
No one can say for sure which alts will grow in the upcoming alt season. But it's a good chance to make quick money, so do your own research (DYOR): the crypto industry provides enough tools for this.
It's not guaranteed that the same coins that grew in the previous alt season will grow in the new one.
What altcoins are you expecting in the new season? Write in the comments and don't forget to share the article with your friend who doesn't know what altcoins are.
