They say that, “A rising tide raises all ships!” This essentially means that when a market is doing well, all participants benefit to some degree. Bitcoin is the market driver that, generally speaking, brings increased investment into the digital asset industry. Once that capital has been invested into the 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 alt coins, in part because Bitcoin and Ethereum serve as trading pairs with these tokens. While this strategy of outperforming BTC in the form of “alts” holds the potential for fantastical returns, it is at a compounded risk of merely holding BTC.
What is Alt Season?
Obviously crypto is not just BTC. It has thousands of other cryptocurrencies that exist alongside it. The quality of these “alternative currencies” or “alt coins” varies greatly; however as a whole, when the price of Bitcoin goes up, these other coins tend to follow suit. Hence, as BTC rallied from $3,500 in March of 2020 all the way to over $46,000 at the time of this publication, the alts skyrocketed with it. Some alt coins like AAVE grew as high as 98,000% in this past year. That means for every $1 you put down when AAVE was trading when it started, you would have $98,000 – potentially blowing wealth.
This said, there is still a lot of uncertainty with the market. But where there is risk and uncertainty, that is the possibility of reward. As Warren Buffet once said: “Be greedy when others are fearful and fearful when others are greedy.”
Crypto Alt Season 20201
For starters, digital asset regulation is still nascent. This means the industry lacks safeguards for investors that exist in more traditional markets. It also means that the market as a whole, and individual projects even more so, can be manipulated by whales (large BTC / token holders), and syndicates. Look at how the market rallied behind John McAfee’s tweets in 2017 or Elon Musk’s more recently. Such activities more often then not come as a result of a minority profiting at the expense of the majority. It is a difficult to time market sentiment and unsophisticated investors do not have robust downside protections in place.
There have been numerous examples of projects that rallied significant enthusiasm from the market and what tends to ignite and propehate alt season. Some succeed, however others eventually fade into obscurity or die completely. There have also been projects that were outright scams or Ponzi schemes, that at some point had markers of legitimacy or at the very least, traction.
Does anyone remember 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 crypto currencies, with a market cap of approximately $2.6 billion. In January 2018, when the price of Bitcoin dropped significantly from it’s then all-time-high, the platform unraveled and nearly all of the value in the token was lost in a matter of days. Had you taken your money out before this time, you would have likely done very well by any conventional standard. If you didn’t, chances are you would have lost most of, if not all or your investment and profits.
Different Types of Alt Season Contenders
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 or pivoted in a way that equates to stealing money from token investors, sometimes going on to raise additional funds from other investors.
It is also worth noting how the token prices of most projects correlate 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. We are in a bull cycle and there are multiple opportunities for extraordinary returns. 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 winnings regularly. When the market shifts from Alt Coins 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-losses, but market volatility can trigger those instructions within it’s regular movements.
Investors may wish to decrease their risk and make safer long term investments. There are several ways to accomplish this including choosing projects that have strong teams, and who deliver products or services that are useful to human life. You also want to invest in alt coins that generate revenue and perhaps most importantly, are able to continue to thrive in a bear (or receding) market. All investments of this nature are speculative and have the potential for loss. The blockchain market tends to price-in the perceived future network value of a project into the price of it’s tokens. More often than not, this perceived value is not yet realized as the market is still relatively infantile and many projects are not fully functional, or widely distributed or utilized. With that said, there is extraordinary upside in identifying the right projects early on.
It is an exciting time to explore the developing blockchain landscape and all the innovation that is happening. Those who complete thorough due diligence, 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.