Altcoin season is called a period or rather a market phase when alternative cryptocurrencies (they are called altcoins) outperform Bitcoin when the altcoin prices grow faster than the Bitcoin price.
Table of contents
- Concept and How It Works
- How to Use
- The Relationship Between the Index and Bitcoin
- Advantages and Limitations
- Do Not Use the Altcoin Season Index in Isolation
- Conclusion
When such a phase occurs, investors start selling Bitcoin and buying altcoins. This, in turn, fuels the growth of altcoin prices.
There are some signs that indicate a coming altcoin season. The most important ones are the following.
- The Bitcoin dominance based on market capitalization is declining.
- Many altcoins grow in price over a very short period.
- Investors show interest in smaller-cap projects with tokens that are characterized by high volatility levels.
Historical Examples of Altcoin Seasons
Past altcoin seasons have already shown how the market behaves. This is why we can now speak clearly about patterns of altcoin dominance. Some of the most notable examples of altcoin season are the following.
2017 boom - there was a massive boom of altcoins in late 2017. This was the time when Ethereum, Ripple, and other altcoins showed impressive growth and delivered its investors massive income.
2021 - With the development of Decentralized Finance (DeFi), many altcoins started growing in value and their price growth rate was much faster than the price increase rate of Bitcoin. Non-fungible tokens added to that trend.
The Altcoin Season Index: Concept and How It Works
So, now that you know about the altcoin season, we can check what the altcoin season index is and why it is needed.
The Altcoin Season Index is a tool that helps traders and investors determine whether the market is currently in an altcoin season. It shows in numbers the performance of Ialtcoins compared to Bitcoin, and helps to determine the market trends.
How Is the Altcoin Season Index Calculated?
We calculate the Altcoin Season Index in the following way.
- If 75% or more of the top 50 altcoins show a better performance than Bitcoin during a specific time (for example, we take 90 days), we tell that we are in an altcoin season.
- If less than 75% top altcoins show a better performance than Bitcoin, Bitcoin still dominates the market. There is no altcoin season.
- If you want to determine more accurately whether there is altcoin season or not, also check not only market dominance but also price movements and trading volume.
Main Factors That Impact the Index
Here are the most important factors that impact the Altcoin Season Index.
1 - Bitcoin dominance is in decline
2 - Market sentiment shifts to altcoins, there are positive news and developments in blockchain projects, technology advances, and all these factors can cause the altcoin season.
3 - The regulatory environment becomes friendlier, and laws are becoming more transparent.
4 - Macroeconomic trends such as financial trends, inflation rate, and the interest of institutional investors in the crypto market can also be a cause of the altcoin season. Several factors affect the Altcoin
How to Use the Altcoin Season Index
Traders and investors should know how to use the altcoin season index. This indicator provides information about the market and the coming trends. Crypto market participants use the altcoin season index for the following:
- It helps to determine the best entry points for investing in altcoins.
- It helps to adjust the investment portfolio.
- It helps to reduce exposure to underperforming assets.
This indicator helps to forecast the growth of altcoins. If the index signals the coming surge in altcoin prices, investors may want to buy altcoins with high potential. On the contrary, if the altcoin season is coming to an end, it may be the right time to fix the profits.
The Relationship Between the Index and Bitcoin
Bitcoin dominance is one of the main factors that helps to check whether the market is in an alt season or not yet. If the Bitcoin dominance is high, it means that investors spend most of their money on Bitcoin. Thus, there is no altcoin season in sight. If Bitcoin's dominance declines, investors will show more interest in altcoins.
So, we can say that Bitcoin price movements and index have an inverse correlation. When the Bitcoin price is stable or moves sideways, altcoins gain momentum. And on the contrary, if Bitcoin experiences a bull run, altcoins may lag, however, they can start growing a little bit later.
How Bitcoin’s Behavior Determines Altseason
The way how Bitcoin behaves determines the alt season. Here are some common patterns that you should pay attention to.
Consolidation phase - When Bitcoin enters the consolidation phase after a strong rally, consider buying altcoins because the market participants will move to them.
Market correction phase - If the Bitcoin price starts dropping rapidly, altcoins will, most likely, follow the same pattern at the start. But over time, investors will start moving their money to altcoins, and it may cause the start of the altcoin season.
Post-Bitcoin rally - when the Bitcoin price reaches its top, investors start moving profits into altcoins, and it causes the alt season.
Advantages and Limitations of the Altcoin Season Index
The altcoin season index is very advantageous for traders. Here are some important benefits that it brings.
Clarity with market trends: this indicator helps to determine when there is a Bitcoin-dominant phase and when altcoin seasons are coming.
Smart decision-making: This indicator uses historical data to forecast the potential arrival of the altcoin season.
Portfolio optimization: The altcoin season index helps to allocate coins correctly.
However, like any other tool, this indicator also has its challenges and limitations. Here is what you should consider.
It is a lagging indicator: It means that this indicator reflects the past performance of the assets instead of predicting their future behavior.
It is impacted by market volatility: Crypto prices change very fast, which is why reacting to changes in a short time is difficult.
External factors: Such external factors as global economic conditions, regulatory challenges, and investor sentiment can impact the market movements and thus, this indicator.
Do Not Use the Altcoin Season Index in Isolation
The Altcoin Season Indicator is a very useful tool, but like any tool, it shall not be used in isolation. Combine it with other indicators and techniques to analyze the market. If you rely only on one indicator, you can make mistakes and lose money.
Conclusion
The Altcoin Season Index is a very important tool that helps to determine in what coins to invest: Bitcoin or altcoins. If you know how to determine whether Bitcoin is dominant or the altcoin season is coming, you can rebalance your portfolio correctly and earn more.