Altcoin Season seems to be upon us – but what is it? As Bitcoin takes a breather, attention is turning to lesser-known cryptocurrencies. Much of the crypto market is still poised, ready to take advantage of a drop in Bitcoin dominance. The cryptocurrency market often revolves around the sentiment towards Bitcoin. However, Altcoin Season, or “Alt Season” as it is commonly referred to, is when investment into cryptocurrency flows more heavily into altcoins than into Bitcoin. Altcoins are often more volatile than Bitcoin, which can be great for the savvy-trader looking to make some tasty gains. However, this volatility can result in a one-way trip to Rekt City for the naive crypto investor. Although navigating the Altcoin Forest can be treacherous at times, it is also one of the most exciting places to be!
In this article, we’re going to explore the broader cryptocurrency space beyond Bitcoin, and the cycles that move the market. Also, we’re going to look at why these cycles occur, and different narratives to watch out for in altcoin rallies. Furthermore, we’re going to look at how the Bitcoin halving plays a crucial role in the insane parabolic moves we see during an altcoin rally.
If you’re entering the crypto space for the first time, welcome! During an alt season, it can be difficult to keep up with all the latest trends in crypto, making it difficult to know where to start. The Crypto Basics course at Ivan on Tech Academy is the ideal introduction to blockchain and cryptocurrency. Here, you can learn how to buy, sell and store your crypto safely, and how to avoid being scammed!
What are Altcoins?
Firstly, we’ll cover the basic terminology for anybody new to the space, and the reasons that cause altcoin seasons to occur. An altcoin is simply any other cryptocurrency that is not Bitcoin. However, there are some exceptions and further categories that have been derived from within the crypto community. Som, what are altcoins?
Ethereum, the second-largest cryptocurrency by market cap, is technically an altcoin. However, Ethereum is the backbone of DeFi and is sometimes seen as being in a category of its own. Some of the crypto community argues that Ethereum is too large of a cryptocurrency to be categorized as an ‘altcoin’. The general consensus within the community sees Bitcoin as the leading cryptocurrency, Ethereum as the second, followed by thousands of alternative altcoins.
Altcoins can be split into different categories. These include stablecoins, DeFi tokens, oracles, exchange tokens, and more. Altcoins serve a wide variety of facilities and services. Bitcoin is seen as a store of value, and Ethereum is the foundation of most DeFi platforms. Anyone can make an altcoin. What makes an altcoin valuable to many, is the utility it offers, and how much it can pump.
However, this does not necessarily always translate to fundamental value. There are thousands of altcoins within the crypto space, a lot of which could be scams or considered ‘shitcoins’. These particular cryptocurrencies are often created on a whim, as a joke, or without any real value or utility attached to the token.
Altcoins generally come with a higher risk-reward ratio than other larger-cap investments. As such, altcoins can make mind-blowing gains in a very short space of time. However, this is not always the case. Historically, the perfect recipe for an Altcoin Season combines a recent Bitcoin all-time-high, retail FOMO (fear of missing out), and a wave of crypto adoption.
Bitcoin Bull Run
So, what has a Bitcoin bull run got to do with an Altcoin Season? Well, nearly everything. Bitcoin is the leading cryptocurrency and arguably the main driver of adoption within the industry. Bitcoin is a disinflationary asset, and approximately every four years (or 210,000 blocks) the amount that enters circulation decreases. This is achieved by reducing the amount of Bitcoin rewarded to miners by 50%. This is often referred to as a ‘halving event’.
Each previous halving event has signaled a significant bull run for Bitcoin in the following years. This makes the price of Bitcoin profitable again for miners when receiving their rewards for contributing to the network. During this time, as the price of Bitcoin continues to rise, it often gains mainstream media attention. Shortly after, it is not unusual to see a rush of retail FOMO to further contribute to Bitcoin’s price momentum.
The price of Bitcoin, naturally, will not continue to rise forever. When the selling pressure outweighs the buying pressure, the price goes down. Often, much of the money flowing out of Bitcoin will stay within the crypto ecosystem. Trading psychology suggests that, once a trader is no longer seeing the returns they’d like on Bitcoin, they may be inclined to transfer their funds to an alternative asset. As the second-largest crypto asset in the space, Ethereum appears to be a logical second choice.
What Is Altcoin Season?
An altcoin season is one of the different cycles previously seen in cryptocurrency trading. Oftentimes, altcoin seasons will follow an exponential move in price from Bitcoin. As the price of Bitcoin stagnates or takes a bearish turn, funds will begin to flow from Bitcoin to Ethereum, then further down into the rest of the crypto market. This is generally what’s referred to as an altcoin season.
Previous bull cycles and alt seasons suggest that the industry begins to see pumps from larger-cap altcoins first, before smaller-cap coins begin to move. An altcoin season is not something that’s announced at a certain time or date, nobody knows for sure when it’s upon us, nor when it will end. There are, however, some indicators that can help calculate whether or not we have officially entered “Altcoin Season”.
When Bitcoin has had several days of parabolic moves, it’s often close to a peak or the beginning of a bearish trend. This is a sign that an altcoin season may be coming soon. Additionally, the Bitcoin dominance would likely be showing a bearish trend, indicating that Bitcoin could be losing its dominance within the cryptocurrency market. Therefore, altcoins would be taking on more weight of the market dominance.
Altcoin Season is renowned for its volatility. You can think of investing in crypto like throwing rocks into water. If you throw a rock into the sea, it won’t make much disturbance, with any ripples being absorbed into a massive body of water. Conversely, throw a rock into a small puddle and you’ll be making larger splashes with a greater disturbance within the environment. Investing heavily into small-cap altcoins can often affect the price drastically if you don’t know what you’re doing. This is one of the reasons we witness such volatility during alt seasons.
Alt Season Cycles
The cyclical nature of cryptocurrency continues during Altcoin Season too. There are thousands of altcoins in the market, categorized according to various trends and use cases. One of the reasons why going full-time in crypto is so worthwhile, is the exposure to news updates, networking, and being able to keep up with the hottest trends. This kind of consistent stream of crypto exposure is critical to maximizing successful gains during an alt season. If you can keep on top of what kind of projects are about to take off, you can place yourself in an incredibly advantageous position.
Below we have listed a selection of popular narratives within the altcoin scene. This list is not ordered, nor is it an exhaustive of altcoin categories, but includes some of the popular narratives discussed among the crypto community. When doing your own research (DYOR) on altcoins, be mindful of the project’s narrative and popularity.
Oracles can be thought of like the blockchain ecosystem’s bridges. Without oracles, smart contracts would be unable to operate. Oracles provide all the on-chain or off-chain data needed for smart contracts to execute operations. Chainlink (LINK), Band Protocol (BAND), DOS (DOS), and API3 (API3) are all popular oracle projects.
One of the latest trends to emerge into 2021 is the use of crypto launchpads. These are platforms for other projects to use for token launches. Some of the most popular launchpad tokens currently include Polkastarter (POLS), TrustSwap (SWAP), and Duck Dao Dime (DDIM).
Exchange tokens are simply the tokens created, used, and distributed by exchanges. This includes both centralized exchanges and decentralized exchanges. The most popular exchange tokens at the moment are Binance (BNB), Uniswap (UNI), 1inch Exchange (1INCH), and Curve (CRV).
The crypto derivatives market is generally considered to have large untapped potential. The traditional derivatives sector dwarfs the traditional store of value assets in terms of market capitalization. Many are anticipating the same effect on the market cap of Bitcoin, as the potential for Ethereum to host decentralized derivatives platforms cannot be underestimated. According to DeFi Pulse, Synthetix (SNX), Hegic (HEGIC), and Nexus Mutual (NXM) are the top crypto derivatives tokens.
Interoperability & Layer 2 Scaling Solutions
Finally, the scaling solutions and interoperability narrative may also see some action during Alt Season, as these projects focus on the expansion and enhancement of the blockchain industry. There are a growing amount of innovative protocols to increase communication between blockchains, increase transaction times and reduce fees for said transactions. Make sure to check out the following projects to learn more about how they’re creating interoperability within the blockchain ecosystem: Polkadot, Matic, and Cosmos.
Why Crypto Education Is Needed
By gaining a solid foundation of education in cryptocurrency and blockchain technology, it will make it easier to understand the crypto cycles to maximize your gains. Additionally, you will be able to observe the transitiosn in the cycles of Bitcoin and other cryptocurrencies for yourself. Moreover, education in cryptocurrency will make it far easier to create your own personal investment strategy.
The cryptocurrency market has been known for its high return on investments when compared to the traditional investment market, with Bitcoin outperforming every other major asset class in 2020. Though this may be the case, Ethereum actually outperformed Bitcoin last year, with some other, smaller-sized altcoins outperforming Ethereum.
Alt Season is a time when gains are often made from investments in smaller-cap altcoins. Furthermore, as a result, this comes with increased risk. Everyone’s goal is to make huge gains, however, this does mean more responsibility in terms of storage, security, and crypto regulation. Moreover, crypto education is crucial for understanding tax implications to avoid getting rekt paying tax on gains.
Lastly, if you gain an education in cryptocurrency it allows you to make the most out of the many DeFi protocols available. To get started in DeFi see our DeFi 101 course! If you already know your DeFi Digital Financial Stack then check out the DeFi 201 course to take your knowledge to the next level, including how to take out a flash loan!
Altcoin Season Summary
Altcoin Season can be a very exciting time, but remember, it is impossible to be involved in all the altcoins – no matter how much you may want to be. Altcoin Season can bring about a lot of emotion; which is not ideal for an investor or trader. If you are trading altcoins, it would be foolish to not have an investment plan and exit strategy in place.
Everyone has their own individual risk appetite. In short, this means that just because your friend or favorite influencer has invested in a particular altcoin, it doesn’t mean you need to. Risk management should be second-to-none when investing in altcoins and is the best way to make the most out of the alt season.
Spreading yourself too thin by investing in lots of altcoins can be confusing and exhausting to keep track of. There are generally few rules around altcoins, anyone is free to invest in a token if they wish. Ideally, it’s only worth investing in as many altcoins as you can easily maintain in your portfolio. This will differ between individuals depending on the time and commitment they can give to the crypto space and to managing a portfolio. Feel free to check out our Promising Altcoin Projects 2021 article for inspiration as part of your own research.
To gain a fundamental understanding of cryptocurrency, the Bitcoin & Blockchain 101 and Ethereum 101 courses at Ivan on Tech Academy are the ideal places to start! Also, if you want to make the most of this alt season, check out our Algorithmic Trading course. Trading altcoins can be time-consuming, so why not learn how to make money while you sleep? Learn how to up your trading game with Ivan on Tech Academy!