Original title: Is "Altcoin Season" a Myth?
Author: Crypto, Distilled
Compiled by: TechFlow
Is “Copycat Season” a mystery?
For the past two years, I have been focusing on the cottage market.
However, one mystery remains unsolved: the much-anticipated 2021 “copycat season” did not arrive as scheduled.
Here, I’ll explain why and offer some tips for optimizing your copycat strategy.
First, let’s define “copycat season”.
Definition: When alts outperform $BTC and the overall value surges.
This was a boom period for the copycat market, fueled by the frenzy of the market.
Think of it as a rising tide that lifts all boats.
That’s what a strong copycat season does — it boosts nearly every industry.
What is the driving force? The massive amount of liquidity that has flooded into the market.
Tracking Liquidity Flows
Historically, there have been two main sources of this liquidity:
Ordinary investors bring new capital inflows through CEXs
BTC outflows from CEXs to altcoins on CEXs
Liquidity then moves further down the market capitalization ladder and risk curve.
Sophisticated investors are so familiar with this dynamic, they often refer to it as the “path to alt season.”
The Lalapalooza Effect
The path to the 2021 copycat season was once clear, but now it is no longer.
I think the reasons are multifaceted and are the result of the combined effect of multiple factors.
Individually, each factor is not powerful enough to make a big difference.
However, when these factors come together and pull in the same direction, the effect is dramatic.
Famous investor Charlie Munger describes this effect as the Lalapalooza effect.
(Note from Shenchao: The Lalapalooza effect is used to describe the powerful impact of multiple psychological and behavioral economics biases acting simultaneously on human decision-making. This effect suggests that when multiple psychological factors affect a person's judgment at the same time, the result may be much greater than the impact of a single factor.)
So what effects are at work here?
I saw several and will do my best to explain them:
Project Overload
Although the market has ample liquidity, the extreme saturation of projects has overwhelmed it.
As you can imagine, there are more ships on the sea than the waves can support.
Only a few areas, such as AI and the SOL ecosystem, truly experienced strong growth during the “altcoin season”.
What used to be a situation where a rising tide lifted all boats has now evolved into a selective rotation game.
As @Rancune_eth said, this is a bit like the PvP combat in The Hunger Games.
Token Dilution: Hidden Resistance
Token dilution, especially due to token unlocking, suppresses an “altcoin season” similar to 2021.
This often overlooked factor absorbs a large amount of natural capital inflows.
No matter how advanced the technology, if supply exceeds demand, prices will have a hard time rising.
@thor_harvisten recently did an analysis of the major releases in 2024.
The average circulation of these projects is about 14%, and there are $70 billion worth of tokens waiting to be unlocked.
When project overload is combined with oversupply, it leads to a tough copycat season.
The double-edged sword of adoption
Increased adoption of traditional finance is a double-edged sword for cryptocurrencies.
On the one hand, it improves the credibility of cryptocurrencies;
On the other hand, it has attracted a large number of smart talents into this field.
While more talent may seem beneficial, it actually increases the efficiency of the market.
If more and more smart people turn to cryptocurrencies, finding a competitive advantage becomes more difficult.
Bitcoin ETF: New Market Dynamics
Yes, you read that right.
The approval of a Bitcoin ETF has changed the landscape of the altcoin market.
Before the advent of ETFs, investors primarily purchased Bitcoin through Tier 1 centralized exchanges (T1-CEXs).
This is good for copycats because it promotes a trickle-down effect of liquidity.
Investors can easily switch from Bitcoin to investing in altcoins.
This time, however, the situation for investors is different.
Those who buy Bitcoin through an ETF face a more complicated path to enter the altcoin market.
The current on-chain user experience deserves a separate article.
The perfect storm: the impact of the coronavirus pandemic
Why is 2021 so special for the cottage market? This has a lot to do with the special environment at that time.
Due to the lockdown measures, the flow of money and people's screen time are abnormally high.
This creates excellent conditions for cryptocurrencies to attract ordinary investors.
Given the rarity of this situation, it’s reasonable to consider 2021 a special case.
People are still so drunk on the prosperity of 2021 that that goal seems just out of reach.
Quick Review
It’s been a rich discussion, so let’s summarize:
The altcoin market has shifted from a general rise to a game of capital rotation.
As markets become more rational, finding an investment edge requires more effort.
Too many projects and oversupply are draining market liquidity.
The traditional altcoin bull market path has been broken due to the impact of the Bitcoin ETF.
Practical advice
The content is broad, but here are some actionable suggestions:
Focus on fully diluted valuations (FDVs) and market saturation.
Keep an eye on developments in ETFs and areas with deep institutional involvement, such as RWAs. These areas may have different and more favorable dynamics in the coming years.
In a market overrun with altcoins, don’t just focus on USD value. Compare altcoin valuations to Bitcoin ($BTC). It’s unwise to hold assets with high risk but low returns. Assessing altcoin performance relative to Bitcoin provides a clearer measure of their strength.
Work hard to gain your investment edge. It's not just about growing your assets, but also about improving your knowledge, skills and connections.
in conclusion
There are many opportunities in the crypto market, but they require more effort and a fresh perspective.
The market changes rapidly and success will go to those who can adapt quickly.
Please note that this is not financial advice, it is just my personal opinion.
