What is alt season?
Alt season (or altcoin season) is a period in the crypto markets when altcoin prices outperform the more established Bitcoin. As more money flows into altcoins, trading volume starts to shift from Bitcoin into these alternative currencies, boosting the collective market cap of the altcoin sector.
Given that Bitcoin traditionally dominates the cryptocurrency landscape with its higher market cap (a phenomenon known as Bitcoin Dominance), the capital flows into emerging projects is generally taken as a sign that the market is entering a bullish phase.
When is alt season?
There is no tell-tale sign for the onset of another alt season, but several metrics could suggest that is approaching.
One commonly used chart is the altcoin season index, which triggers an official altcoin season once the top 75% of the market’s top 50 tokens consistently exceed the performance of Bitcoin during a 3-month span.
As alts begin to dominate the headlines and conversations, BTC dominance inevitably begins to drop, as traders make the seasonal migration to large cap tokens. Some analysts peg the onset of Alt Season when BTC dominance dips below 60%.
What is behind alt season?
The exact cause of alt season can be difficult to pinpoint, but there are three factors that may precipitate the onset of the trend towards altcoins:
Bullish markets
Far and away the strongest predictor of an oncoming alt season, bullish sentiment–not just in the crypto market, but wider global markets–is generally seen as a sign that capital will move into altcoins. With an increased risk appetite, investors are willing to put their money into new and emerging projects.
The Rise of New Crypto Trends
The crypto industry has shown time and again that much of its market activity comes from the groundswell of support in various online communities on platforms like Twitter and Discord. These communities foster excitement and demand, especially around new trends and tokens that offer novel features and solutions to pressing problems in the crypto space. 2020 saw large capital inflows into the decentralized finance (DeFi) space, while the hype around NFTs in 2021 contributed to another altcoin season.
Decreasing Interest in Bitcoin
Contrary to the increased interest in altcoins, alt season will usually see less interest in Bitcoin. While not always a zero-sum equation, the tendency of Bitcoin price to stabilize after a period of upward movement can lead traders looking for short-term returns to turn to altcoins. Retail investors and traders who may have missed the chance to buy Bitcoin at lower prices will generally also look to altcoins for better returns, increasing the market cap of the wider altcoin sector.
While alt season can be very profitable if you back the right projects, it’s important to keep in mind that, much like the wider global economy, it is simply part of a longer-term market cycle in which price fluctuations are inevitable. Stay informed, do your research and keep updated to make the most of alt season.