With Bitcoin's rise this week, its price has approached nearly $73,600, just under $200 away from its historical high. As of writing this article, Bitcoin's dominance (BTC.D) has reached 60%, marking the first time it has hit 60% in nearly three years. As shown in the figure below.
In previous articles on Huali Huawai, we mentioned that based on historical experience (data), when Bitcoin reaches the 65-70% range, it usually heralds the arrival of altcoin season, at which point some altcoins will begin to surge in a sequence. Although historical experience does not represent the present, and this cycle has many differences from previous cycles (such as this bull market being mainly driven by ETFs and the emergence of a multitude of new projects diluting liquidity), the arrival of altcoin season is still something to look forward to.
A couple of days ago, a partner shared an OTHERS data indicator in the group, as shown in the figure below.
From the indicators shared in the above figure, this is a typical head and shoulders bottom pattern, and it seems to be forming the right shoulder. A breakout point may appear between positions (2) and (3). Once the breakout occurs, there is a high probability of a pullback to position (4), followed by a continued rise to position (5).
Currently, the total market cap of altcoins is still fluctuating, and overall, this bull market's altcoin season seems to be in a relatively lagging state. So when can we expect to welcome a new round of altcoin season?
The BTC.D indicator mentioned earlier is considered by many as one of the important indicators for measuring when altcoin season will arrive. The underlying logic here is quite simple: when the price of Bitcoin rises, some Bitcoin holders in the market will start to sell, which means they will hold a lot of cash (USDT/USDC) afterward. This cash may enter the altcoin sector for speculation, leading to a rise in the prices of corresponding altcoins, causing the altcoin sector to begin to rotate upwards, which will also attract more on-market/off-market funds to join in the speculation, thus forming the altcoin season.
However, for retail investors, most are always a step behind. The process described above has a strong retrospective nature; in other words, when you notice Bitcoin's dominance starting to decline, altcoins have often already begun to rise. At this point, if retail investors chase in based on news trends, most will become bag holders, as the rotation in the altcoin sector can happen very quickly.
So, as retail investors, how can we try to avoid the situation described above?
First, focus on the thought process:
The core idea here is to ensure that you can stay ahead of other retail investors through more reliable methods that you believe in. The specific application of reliable methods may vary based on personal judgment. For example, I’ve found that some partners in the group are good at forming their own indicators and even use their participation in different attribute groups to observe the sentiment and activity levels within the group to assist in making entry or exit decisions. As shown in the figure below.
Secondly, focus on strategy:
There are actually many factors we can refer to in this regard. In addition to the BTC.D indicator and OTHERS indicator mentioned above, previous articles on the topic of altcoin season in Huali Huawai also discussed USDT.D, ETH/BTC exchange rate, TOTAL3, Altseason index, and so on. Interested partners can search and review historical articles.
In addition to using various on-chain indicators for strategic assistance, macroeconomic factors are also crucial for our research and attention, such as US Net Liquidity (net dollar liquidity, which is calculated by analyzing the Federal Reserve's balance sheet and other macroeconomic factors).
If we combine the TOTAL3-USDT-USDC data indicators with the US Net Liquidity indicator, we will find that changes in net dollar liquidity can serve as a reliable reference indicator or signal for altcoin season. As shown in the figure below.
This is not hard to understand; the liquidity of the crypto market mainly depends on the liquidity of the dollar. When dollar liquidity is on an upward trend, with more funds flowing into higher-risk assets, altcoins often perform well. Conversely, when dollar liquidity contracts, the market value of altcoins tends to decline.
Therefore, by tracking dollar liquidity, we can further understand the liquidity situation of the crypto market to determine the potential timing of the altcoin season. Of course, liquidity data indicators can be interpreted by anyone, but we must understand that such indicators also have a lagging effect and need to be considered in conjunction with policies (Federal Reserve monetary policy).
Generally speaking, policy shifts from the Federal Reserve take about 4-8 months to fully manifest in the market. For example, in May this year, the Federal Reserve adjusted its balance sheet reduction plan, announcing a reduction in the monthly limit for selling US Treasuries from $60 billion to $25 billion starting in June (Note: Slowing the balance sheet reduction means reducing the speed of capital recovery, which helps maintain ample funds in the market). This serves as a potential signal of policy shift; theoretically, we may see some positive reflections in the market starting in September. You can see for yourself the performance of the stock market or crypto market since September.
Next, we need to focus on the two upcoming FOMC meetings by the Federal Reserve, scheduled for November 6-7 and December 17-18. As shown in the figure below. If the Federal Reserve announces further rate cuts at that time, it will be a new clear signal, and we may see greater market opportunities in the near future.
In summary, by paying attention to some on-chain indicators, dollar liquidity, and the Federal Reserve's monetary policy, we will be better equipped to anticipate market trends, including determining the timing of the potential arrival of altcoin season.
However, it is important to note that while we mentioned that the arrival of altcoin season is something to look forward to, it does not mean that all altcoins will have opportunities for explosive growth. The main reasons for this have also been discussed in previous articles on the topic of altcoins in Huali Huawai, and here we will briefly summarize:
- There are far too many projects born in this cycle, even to the point of describing it as massive, which will lead to liquidity being severely diluted. Even if we are able to welcome a new round of so-called altcoin season, only a portion of tokens may have the opportunity to break through; we should recognize this broader new trend of altcoin season.
- This bull market cycle is mainly driven by ETFs, and the inflow/outflow of ETF funds is more influenced by sentiment. This portion of funds can be classified as off-market funds and will not directly (or fully) flow into the altcoin market.
- Many VC projects born in this cycle start with low circulation and high FDV. The project teams and institutions are continuously offloading, causing retail investors to be trapped. This seems very difficult to pump (even if they try, it will just be a situation of pumping while offloading, with no strategic perspective from the project team). Rather than spending a lot of money to pump, project teams might as well just open a new project to re-trap investors.
- The narrative of MemeCoin in this cycle has attracted the attention of almost all retail investors, many of whom may prefer to take risks with lower market cap coins for higher payouts.
- As for some old coins from the previous cycle, it is harder to pump them due to the large amount of trapped positions. This means that if the project team tries to pump, it would give trapped holders a chance to break even, and the project team wouldn't be foolish enough to do that when it means losing money. This also serves as a reminder to everyone not to become obsessed with any altcoins; it’s best to take profits (at least withdraw your principal) or continue to exchange them for Bitcoin.
As described by partners in the group: last year, as long as you entered any new track early, you could make a profit, but this year has been hellishly difficult. In the later stages of a bull market, it is often a crazy time when it seems like everyone can easily make money, but in the end, you will find that there are actually more people losing money.
We have reason to believe that in the coming year, the crypto market will become more interesting. By the end of this year, we may continue to face BTC time (but the market is volatile and there may be significant fluctuations in the next two weeks, so be cautious with leverage). In the first or second quarter of next year (2025), we may welcome Altcoins time. If you are not yet disappointed or disheartened by this bull market, please continue to focus on accumulating and holding your most firmly optimistic positions, and also start planning your bull market exit strategy.
We will stop sharing content here for this issue. More articles can be viewed through the Huali Huawai homepage. The above content is just personal viewpoints and analyses, merely for learning records and communication purposes, and does not constitute any investment advice.
