In this bull market, Bitcoin has been the standout performer, while altcoins have remained relatively quiet. This is a different situation compared to previous bull markets, and investors are wondering how to respond. This article, sourced from crypto KOL Crypto, Distilled, analyzes the reasons behind this phenomenon and provides recommendations for investors.
What is the “Altcoin Season”?
Altcoin season occurs when altcoins outperform Bitcoin and experience a significant price surge. It is a period of robust development in the altcoin market, driven by optimism, similar to a rising tide lifting all boats. Altcoin season drives the development of almost all projects, with a surge of liquidity entering the market.
Liquidity Tracking
Historically, liquidity primarily comes from two sources:
1. Retail funds flowing into centralized exchanges (CEX).
2. Bitcoin flowing from CEX to altcoins on the same exchange.
Then, liquidity flows down the market cap ladder. This dynamic is often referred to as the “Altcoin Season Road” by OGs in the crypto community.
Lalapalooza Effect
In 2021, the Altcoin Season Road was clear, but now it seems to have disappeared. The author believes that this is the result of multiple factors working together, which is described as the “Lalapalooza Effect” by the late renowned investor Charlie Munger.
These combined factors have had several impacts:
1. Project Saturation
Although there is ample market liquidity, projects are extremely saturated. Imagine there are more boats in the sea than there are waves. Only certain areas, such as AI or the SOL ecosystem, experience the true wave of altcoin season. The previous rising tide effect has evolved into a selective rotation game, similar to the PvP nature of “The Hunger Games” movie (projects competing against each other).
2. Token Dilution: The Invisible Brake
Token dilution, especially from token unlocks, has hindered altcoin season similar to 2021. This often overlooked factor absorbs a significant amount of liquidity. Regardless of the quality of a project’s technology, it is challenging for prices to rise when there is an oversupply.
A sample survey conducted by community user @thor_harvisten on tokens launched until 2024 showed that the average circulation rate (circulating supply / total supply) of these project tokens is approximately 14%, with around $70 billion worth of tokens waiting to be unlocked.
When project saturation combines with token oversupply, altcoin season becomes difficult to sustain.
3. Increased Adoption: A Double-Edged Sword
Increased adoption in traditional sectors is both a good and bad thing. On one hand, it enhances the credibility of cryptocurrencies, but on the other hand, it makes the industry more competitive. If more intelligent people shift to cryptocurrencies, it becomes harder to find opportunities in the industry.
4. Bitcoin ETF: A New Dynamic
The approval of a Bitcoin spot ETF has changed the landscape for altcoins. Before the ETF, the primary gateway to Bitcoin was through CEX. This was beneficial for altcoins as investors could easily transition from Bitcoin to exploring altcoins. This time, the buyers are different. Those who buy Bitcoin through the ETF do not directly enter the altcoin market.
5. Impact of the COVID-19 Pandemic
Why is 2021 so different for altcoins? It is largely due to the unique environment. In a lockdown situation, there was high capital flow and screen time, creating perfect conditions for attracting retail investors to cryptocurrencies.
Given the rarity of this situation, it is reasonable to consider 2021 as an outlier. While everyone is still immersed in the climax of 2021, the boom is no longer present.
In summary, the reasons for the “disappearance” of altcoins are:
1. The altcoin market has shifted from a rapid upward trend to a rotational game.
2. As market intelligence increases, finding opportunities requires more effort.
3. Project saturation, combined with oversupply, is depleting liquidity.
4. The traditional path of altcoin season has been disrupted by Bitcoin ETF.
In the current market environment, users should consider the following:
1. Pay close attention to fully diluted valuation (FDV) and saturation rates.
2. Monitor the development of ETFs and areas where institutions are heavily involved, such as RWA. In the coming years, these areas may offer different tracks and more favorable dynamics.
3. In a market flooded with altcoins, don’t solely focus on the dollar value of projects. Comparing the valuation of altcoins to Bitcoin can provide a more accurate assessment of their strength.
4. Put in more effort to gain an advantage. This is not just about increasing assets but also about improving knowledge, skills, and networks.
In conclusion, there are still plenty of opportunities in the crypto market, but it requires more effort and a fresh perspective. The situation is constantly changing, and those who can adapt quickly are more likely to succeed.