Understanding Altseason and What to Expect in 2021
Cryptocurrency came into existence in 2009. Since its invention, the market has grown significantly, and today, there are over 5000 cryptocurrencies. It has become a competitive market with key industry players as well as competitors. Further, the industry has seen the development of different terms and phenomena such as ‘Altseason’ and ‘Altcoins,’ which cryptocurrency experts and traders come out to explain.
Bitcoin was the first and most significant cryptocurrency. However, several other cryptocurrencies have come up, including Monero, Ethereum, XRP, Dash, which are all alternative coins. These alternatives to Bitcoin are generally referred to as altcoins. Altseason means altcoin season, a season when these alternative coins are performing better than BTC.
How Does an Altseason Happen?
The cryptocurrency market share divides between the bitcoin and the altcoins, with the BTC taking up the larger market share. The market operates based on the principle of demand and supply. An increase in the demand for bitcoin results in an increase in BTC prices, and the effect is that the price of altcoins decreases. At this time, more people are investing in bitcoin against altcoins or fiat money, such as Pounds, Euros, and Dollars.
On the contrary, a decrease in the demand for bitcoin results in decline in price, and the effect is that most of the altcoins’ prices would rise. At this time, more people are investing in altcoins against the BTC and fiat money. The period when the price of altcoins is increasing at the expense of the bitcoin is the altseason.
After the growth of bitcoin and the crypto market’s capitalization, several other cryptocurrencies emerged and became competitors to the BTC. The bitcoin price was quite high, and investors saw the potential in some of the cheap altcoins growing to the BTC ranks.
Consequently, the BTC and altcoins became the players in the cryptocurrency market share, with bitcoin holding the dominance. As such, any decrease in bitcoin’s market share means an increase in altcoins’ market share, which causes an altseason to occur.
Benefits of Altseason to Investors
During altseason, people develop a positive view of the altcoins as their prices increase. Investors increase their stack in altcoins at the BTC expense, thereby creating a demand for more altcoins. The money invested in bitcoin flows into various altcoins, which further creates a domino effect. The price increase occurs within a short period, and it can drop unpredictably.
As such, investors can take advantage of the altseason by investing wisely in altcoins during altseason since their price is upward. However, they must be keen to resell the altcoins again before the altseason comes to an end to make a profit. It is basically like the black Friday in the crypto world, and traders can make the most of their earnings.
How to Differentiate Altseason from a Bubble
A bubble results when new players join the market, with the effect that there is an unprecedented reduction in supply. The existing miners sell their cryptocurrency at higher prices to maintain their profits. The action then attracts a wave of new investors into the cryptocurrency market. Bubbles are quite challenging to spot and can only be seen as or when they pop up. However, they can also burst as fast as they popped, and investors who do not sell before the burst can be left in losses.
Altseason, on the other hand, can be spotted by looking at the bitcoin dominance. If the percentage of capital market share and price of BTC begins to fall, this indicates the beginning of altseason since altcoins are gaining in value.
History of the Past Altseasons
The most remarkable altseason happened in December 2017 after the extreme rise of BTC price. From January 2017 and throughout the year, the price of a bitcoin rose to 19 times. It was trading at $1,000 in January but hit $19,000 towards the end of the year. Many people heard about bitcoins for the first time during this bubble, even though crypto had been around since 2009.
People began viewing the small-priced altcoins as potential cryptocurrencies that would rise to the ranks of bitcoin. At this time, BTC held about 90% of the cryptocurrency market share, while other cryptocurrencies held the remaining 10%. The demand for altcoins began increasing, and there was a massive entry of new investors into the cryptocurrency capital market. By December 2017, the bitcoin bubble burst, with the bitcoin capital market share beginning to fall, and the altseason began.
Almost all altcoins experienced an exponential increase in prices in the following year, with some experiencing a 400% rise. Dash, for instance, traded at $10 in January 2017 but was valued at $1439 in January 2018. However, this was the highest peak for altcoins, and most of them have never seen such highs. Bitcoin, on the other hand, gained back its market share, which currently stands at above 65%.
Can We Expect An Altseason in 2021?
It is difficult to predict when an altseason will occur since multiple factors can result in its occurrence. However, some of them can serve as indicators. Market dominance is the best indicator, so traders only have to keep an eye at the BTC’s market dominance to detect the possible start of altseason.
Based on historical data, a fall in the bitcoin dominance to below the 50% level results in exponential gains in altcoins. Therefore, a similar fall in BTC dominance would most probably come with a rhyming effect, and the next altseason could be about to happen.
The cryptocurrency market is highly volatile, and you can never be sure of making a profit. The trend is mostly some long periods of lows and short highs. As such, it is always advisable for you to invest what you can afford to lose. The altseason may or may not come today or in the next few weeks. However, it is good to stay prepared for when it happens by diversifying your crypto portfolio with several altcoins.