“A rising tide raises all ships.” In other words, when a market is doing well, all participants benefit to some degree. Bitcoin (BTC) is often the market driver that brings increased investment into the digital asset industry as a whole. 

There’s a name for this in the crypto world: altcoin season, or simply, alt season. 

Alt season is often associated with the opportunity for increased profit-making, but before you can position yourself to potentially benefit from alt season, you’ll need to understand why it occurs, and some common indicators for alt season.

What is alt season? 

Once capital has been invested into the crypto market through a major channel like BTC or even Ethereum, it is not uncommon for people to divest, speculate or gamble with other projects in the form of altcoins, in part because Bitcoin and Ethereum serve as trading pairs with these tokens. 

alt season, at its core, is characterised by a drop in Bitcoin dominance. It occurs when more investment is going into altcoins than it is into BTC. Bitcoin dominance is the measure of Bitcoin’s market cap compared to altcoins market cap.

Some sources go as far as to quantify it as when 75% of the Top 50 coins outperform Bitcoin for more than three months, like Blockchain Centre’s Altcoin Season Index, but exact quantifiers differ.

What causes alt season?

There are many factors that may instigate an alt season.

Bitcoin price

When the price of BTC spikes, it’s quite common for other altcoins, to follow suit, thus reducing Bitcoin’s dominance. Hence, as BTC rallied from $3,500 in March of 2020 all the way to over $46,000 within a year, the alts skyrocketed with it. Some altcoins like AAVE grew as high as 98,000% in that time period. That means for every $1 you put down when AAVE was trading when it started, you would have $98,000 – potentially blowing wealth. 

Of course, this is only one example of alt season but we’ve seen it happen time and time again, typically when BTC is on a strong run.

New Projects & Coins

Other times, particularly exciting or innovative projects, or even just opinion leaders in the space, can spark an alt season. Look at how the altcoin market rallied behind John McAfee’s tweets in 2017 or Elon Musk’s more recently. 

There have been numerous examples of projects that rallied significant enthusiasm from the crypto market and what tends to ignite and propagate alt season. Some succeed, however, others eventually fade into obscurity or die completely (go to zero).

Unfortunately, alt season has also seen countless scams though, with fake projects launching that lost investors’ money and have previously led to bear markets. 

It isn’t just scams where investors have lost money. There are numerous examples of highly regarded projects where their token prices are a mere fraction of what they were around the time of launching. There are also many examples of founders or teams that either abandoned projects entirely. 

As always, due diligence is required.

Investing Strategies During Altcoin Season

Identify the Markers of a Good Altcoin

Fail to prepare, prepare to fail. alt seasons are not a new phenomenon, so by looking at what coins have typically behaved well in the past and their characteristics you can better gauge what coins may be worth investing in when the next alt season rolls around.

Typically coins that have been linked to cryptocurrency exchange products have performed well – when peak market performance occurs these platforms are often onboarding more users.

Of course, a dedicated community, working product and strong roadmap are good indicators of any altcoin, not just during alt season.

Make Contingencies for Bear and Bull Markets

Look at how the token prices of most projects correlated with Bitcoin in the bear market that started at the beginning of 2018. As mentioned at the start, a rising tide raises all ships… but then a lowering tide does just the opposite. When the market sentiment u-turns and inevitably turns from bull to bear, the question to ask yourself is what are you prepared to lose and what does a win look like for you? Keep this in mind at all times, be disciplined, and take profits regularly. 

When the market shifts from altcoins back to BTC or fiat, it is very difficult to catch the movement in real-time and you are likely to suffer losses if you don’t. You can try to accomplish this by setting and managing stop-loss orders, but market volatility can trigger those instructions within its regular movements. 

Previous Altcoin Seasons

Two of the most notable, and indisputable, alt seasons occurred from December 2017 to January 2018, and from December 2020 to April 2021.

Bitcoin had its best run to date in 2017 and in its wake, many new coins launched. With the success of BTC many investors jumped into alternative coins at the time.

BTC had another strong run in 2020 which saw new coins again launch and break records in mere weeks. 

Related: How to find the best altcoins

Notable Altcoins

There are thousands of digital assets so it can be overwhelming to know where to begin.

Looking at coins by market capitalisation is a good place to start and, as mentioned, doing your research into coins that have loyal communities and strong use cases.

In late 2021, NASDAQ identified some of the best altcoins as Cardano, Litecoin, Neo, Binance Coin, Polkadot and Chainlink. These all offer solutions to many societal problems, from facilitating cross-border transactions to smart contract development. However, sometimes even the most promising projects don’t quite take off or perform as expected.

One notable altcoin linked to alt season was Bitconnect. It was presented as a Bitcoin staking platform that offered investors returns of 0.5% – 1% daily. At its peak, it sat in the top 10 cryptocurrencies, with a market cap of approximately $2.6 billion. In January 2018, when the price of Bitcoin dropped significantly from its then all-time-high, the platform unravelled and nearly all of the value in the token was lost in a matter of days. 

While altcoins can offer exponential and rapid growth, they can also be more volatile. 

Summary

It is an exciting time to explore the developing blockchain technology landscape and all the innovation that is happening. Altcoin seasons indicate that new money flows in the market causing an increase in the value of many altcoins. Those who conduct their own research, have strategic and unemotional investment strategies, and truly understand the landscape – as opposed to chasing trends – are likely to come out of their investments and alt season in better shape than others. If you are going to get involved, good luck and be prudent.