What Is Alt Season and How to Apply It on Crypto Trading?

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What is the hype around Altcoin Season? This is the season to be jolly, as undervalued altcoins surge in volume and bring more wealth to crypto investors. Altcoin Season is the cyclical movement of altcoins such as Ethereum against Bitcoin. The year 2021 saw a rising tide of Bitcoin investment that lifted the prices of the overall crypto market. 

Simply put, commodities’ prices move in tandem with each other. Read on to learn the financial knowledge you need to take advantage of the altcoin season. 

Are We in the Altcoin Season Now?

To find out, let’s take a look at the price fluctuations of crypto for the past year. 

Just like financial markets, cryptos serve various industry purposes. DeFi, for example, fulfills the current financial technology gap. The pandemic-induced recession forced large and small companies to restrategize their path toward digitalization and decentralization. 

This has led to an increase in the movement of funds into Bitcoin and altcoins last year. The trading volume of cryptocurrency has increased by 35% year-to-date. 

Not only did Bitcoin show strong dominance in market capitalization, but altcoins such as ethereum are also appreciating exponentially. 

And here’s the kicker: statistics show that about 75% of the top altcoins are outperforming Bitcoin over the last 90 days, thereby indicating the arrival of the Altcoin Season. 

Image source: Blockchain Center

How to Ride on Altcoin Season?

You might be wondering how to ride the Altcoin Season for quick wins. Here are all the terminologies you need to know to get started. 

What Are Market Cycle Theories?

Before we dive into the infinite realms of crypto, we ought to understand some traditional concepts of finance. Conventionally, there are market theories about asset prices moving in cyclical or sector rotation. 

Cyclical movement refers to equities that reflect the macroeconomy. For instance, bank stocks would usually perform well when the economy’s GDP growth rate is high and vice versa. 

As GDP growth hits the trough, the fed (a rate set by the Federal Reserve) and bank loan rates will decrease; this indicates a good time to buy undervalued tech and bank stocks. 

However, as the economy recovers, investors can adopt a different strategy to sell non-cyclical stocks, such as pharmaceuticals. Thus, cyclical investing suggests that an investor can buy different types of stocks as the economy grows at different rates. 

Image Source: Sector Market Watch

Sector Rotation is another popular market theory that describes investors moving money from stocks in one industry to another as they anticipate the next economic cycle. 

Bonus chapter: Seasonal cycles, on the other hand, refer to the equity market moving in momentum with seasons of the year, such as the autumn rally. Yale Hirsch of the Stock Trader’s Almanac has pointed out that the best six-month seasonal pattern for the S&P 500 extends from November to April.

All the theories above assume that financial markets are predictable, as they move in cycles. But can the same theory apply to crypto, which is a wildly volatile market? 

What Are Crypto Market Caps? 

Cryptocurrency technology may be hard to decipher, but fret not — cryptocurrencies are just financial instruments that behave similarly to traditional financial markets. Market capitalization measures the value of the financial assets versus the entire open market. There are large and small capitalization in the crypto market.

A quick way to calculate is to multiply the total coin in circulation with the price of the coin. 

Market Capitalization of Coin A = 

Total Coin in Circulation*Price per Coin.

Currently, the total market capitalization of all the crypto coins stands at $2 trillion, according to CoinMarketCap. Mainly, the large cap crypto is Bitcoin, which represents 50% of the total crypto market cap. Altcoins represent the mid and small cap cryptos, as they’re characterized by their riskiness and lower market value. 

Image source: CoinMarketCap

Bitcoin Dominance and Large Cap Crypto

Despite the volatility, large-cap cryptos are considered to be a safer investment than mid and small-cap cryptos. However, their growth potential is limited, making Bitcoin more suitable for long-term investment.

Want to know the best part? After rallying for a full year, Bitcoin started losing its steam in January 2021. Between the period of January to February, Bitcoin dominance was reduced from 69% to 61%. However, Ethereum market cap increased from 12% to 15%. You might think this is crazy, but this can be further tested with candlestick charts such as Ichimoku Cloud and Bollinger Bands. 

Ethereum Breaks Away From Bitcoin 

What does this all mean for the investors? Ethereum breaking away from Bitcoin is a huge sign that altcoins are on their way to gaining independence — akin to unpegging currencies from USD. It shows that Ethereum has strengthened its currency and market value. 

Unlike other cryptocurrencies, Ethereum is not a fantasy internet coin. It touches literally every industry on earth — and is especially driven by the $51 billion boom of the Decentralized Finance (DeFi) industry. For instance, Uniswap and Maker are some of the driving forces for the boom.

Apart from the popular coins, institutional interest in Ethereum has also driven its overall market value. Earlier this year, ETH was on a bullish breakout of 295% since the launch of Ethereum futures on the Chicago Mercantile Exchange.

Altcoin Season (Besides Ethereum) and Small Cap Crypto

In the last week of May, Grayscale Investments unveiled a list of small cap altcoin-related trust funds. For instance, Doge, ETC and AOL are climbing up the crypto chart of honors in price and trading volume. In fact, Doge increased by 452%, while BTC reduced by 7.3% in market cap over the last 30 days.  

Other altcoins that are powered by Web 3.0 — Cardano, Algorand, and DeFi assets — are also gaining the interest of retail investors. Furthermore, according to Blockchain Center, altcoin season and month index are at 88% and 86% respectively. This shows that altcoins pose opportunities for quick wins versus the digital gold.

Five Steps Guide to Spotting Altcoin Season

Here are the five signs that signal an impending altcoin season: BTC dominance, Ichimoku Cloud indicator, Bollinger Bands, Average Directional Index, and altcoin market capitalization. 

Firstly, Bitcoin and altcoins are constantly fighting for the upper hand in the crypto market. That said, if Altcoin is dominating the crypto market, it’s a signal of the Altcoin Season. 

Secondly, the Ichimoku Cloud indicator is used to define the boundaries of support and resistance levels. Furthermore, if the volatility of the asset is in relation to the depth of the Cloud. 

You might be wondering: How do I use this indicator to interpret the alt season? Should the bitcoin price fall through the cloud, it would reveal a period of correction for the asset and transfer of the money to more profitable assets, such as altcoin. 

Thirdly, using Bollinger Bands shows the volatility of the underlying asset through the calculation of standard deviations. This indicator will affirm the interpretation in Ichimoku Cloud. 

Additionally, the average directional index is used to measure the strength of a trend. If the ADI is above 25 for altcoin, it confirms the Altcoin Season and vice versa. 

Last but not least, you should monitor the altcoin market cap and noise constantly to make the best of your investment. For instance, cryptocurrency halving can lead to more demand for the coin and drive up the price. 

Bottom Line 

Will altcoin outperform bitcoins? Bitcoin will still helm the crown due to its strong market dominance. However, Altcoin Season can be a period of quick gains. Indeed, Bill Miller, one of the top fund managers in the world, has noted the resemblance of crypto investment with that of early tech. Read here to find out some of the top DeFi projects to invest in this year!

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