What Are Altcoins?

What is an altcoin?

An altcoin, short for “alternative coin,” refers to any cryptocurrency other than Bitcoin. Since Bitcoin’s inception in 2009, the digital currency landscape has burgeoned, giving rise to a diverse ecosystem of altcoins, each designed with specific purposes, technological frameworks, and economic models.

Altcoins encompass a wide array of cryptocurrencies that introduce various innovations, improvements, and alternatives to Bitcoin, ranging from enhanced privacy and reduced transaction costs to support for smart contracts and decentralized applications (dApps). 

What is an altcoin season?

Altcoin season refers to a period characterized by a significant increase in the market performance of altcoins against Bitcoin. During such a season, traders often witness a notable surge in the value of altcoins, sometimes outpacing the gains seen in Bitcoin. This phenomenon is marked by heightened investor interest, increased trading volumes, and substantial price rallies in the altcoin market, contributing to a sense of optimism and speculative fervor.

How to know when altcoin season is starting?

The onset of altcoin season is not triggered by a single, definable event but rather results from a confluence of factors. Predicting the start of an altcoin season requires a holistic approach, combining technical analysis with an understanding of market sentiment, technological developments, and macro-economic factors. Collectively, these signals can provide valuable insights, helping traders make informed decisions in the dynamic cryptocurrency market. 

Broad market recovery 

Following a market downturn, a broad recovery that sees altcoins rallying alongside or even outperforming Bitcoin can indicate the onset of altcoin season. This recovery often coincides with a general increase in risk appetite among traders, leading them to seek higher potential returns from altcoins. A higher risk appetite means traders are more likely to invest in altcoins, which are considered riskier than Bitcoin.

Macroeconomic factors

Macroeconomic factors such as inflation rates or changes in traditional financial markets can influence one’s behavior towards cryptocurrencies.

Regulatory news and developments can affect the cryptocurrency market’s accessibility and investor sentiment. Macroeconomic factors, like inflation, can potentially drive traders towards cryptocurrencies as a hedge against fiat currency devaluation. When regulatory bodies offer clear guidelines and positive sentiments towards specific altcoins, it may encourage more participation in the crypto market by the prospect of a safer, long-term trading environment. 

Declining Bitcoin Dominance

Bitcoin Dominance Index measures Bitcoin’s market capitalization relative to the total crypto market cap. Bitcoin Dominance is calculated by dividing the market capitalization of Bitcoin by the total market capitalization of all cryptocurrencies, then multiplying the result by 100 to get a percentage. 

This figure reflects Bitcoin’s relative size and, by extension, its influence over the crypto market. A high Bitcoin Dominance percentage indicates that a large portion of the crypto market’s value is concentrated in Bitcoin, suggesting that traders might be favoring Bitcoin over altcoins, possibly viewing it as a safer or more reliable investment. 

After a significant rally in Bitcoin’s price, traders often redistribute profits towards altcoins, searching for potentially higher returns. This shift typically occurs when Bitcoin’s price stabilizes or consolidates after a peak, making altcoins more attractive due to their lower market cap and perceived growth potential. Such movements inject liquidity into the altcoin market, initiating altcoin season, where many altcoins experience substantial price increases.

Conversely, a declining Bitcoin Dominance is one of the primary indicators of an altcoin season. It suggests that traders are diversifying their portfolios away from Bitcoin and into altcoins, driving up their prices. It implies a relative increase in altcoin market caps, signaling a shift in investor preference.

For instance, Bitcoin dominance fell from over 70% in January 2021 to around 40% by May 2021, underscoring the altcoin market’s growth.  Generally, many traders consider a noticeable decrease in Bitcoin’s dominance—such as it falling below a certain threshold like 50% or 40%—as an indicator that altcoin season might be starting. Platforms like Coinstats feature dominance charts for this purpose.

Source: https://coinstats.app/btc-dominance/ 

Increase in altcoin trading volumes

A surge in trading volumes for altcoins indicates an uptick in market activity and growing investor interest. High volumes are often a precursor to significant price movements, as they reflect increased buying and selling activity. Trading volume is an important indicator of market activity and liquidity. It represents the total number of coins traded (bought and sold) within a specific period, usually 24 hours. For instance, daily trading volumes across all cryptocurrencies frequently exceeded $100 billion during peak periods of the 2020-2021 altcoin season. This can be observed on exchanges and data platforms and is a critical measure of the altcoin market’s overall health and activity.

Altcoin price breakouts

When multiple altcoins begin to break out of their resistance levels and chart new highs independently of Bitcoin, it often signals the start of an altcoin season. These breakouts, especially when accompanied by increased volumes, indicate strong market sentiment in favor of altcoins.

Price breakout occurs when a cryptocurrency’s price moves outside a defined support or resistance level with increased volume. Technical analysis tools like Relative Strength Index (RSI), MACD (Moving Average Convergence Divergence), volume indicators, etc., can help in identifying these trends.

Increase in market capitalization of top altcoins

A key characteristic of an altcoin season is the diversification of gains across a wide spectrum of altcoins, rather than being concentrated in a few. When a majority of altcoins are posting gains, it indicates a broad market trend favoring altcoins over Bitcoin. Market trends can often be sector-specific within the cryptocurrency space, affecting categories like DeFi, NFTs, or layer-1 protocols. 

Market capitalization, calculated by multiplying the current price of a cryptocurrency by its circulating supply, offers a snapshot of a cryptocurrency’s relative size and market share. An observable rise in the market caps of top altcoins is a classic harbinger of altcoin season. This increase indicates growing investor confidence and capital inflow outside of Bitcoin, often driven by the perception of undervaluation or the potential for higher returns.

As top altcoins begin to capture a larger portion of the total market cap, it suggests a broadening interest and diversification within the crypto space, laying the groundwork for an altcoin season.

Bitcoin crossed an all-time high of over $73,000 in March 2024, which also saw the global crypto market value cross over $2.5 trillion, and altcoins total market capitalization surpassing $1.1 trillion, according to data from CoinMarketCap.

Uptrend in Altcoin Index

The altcoin index tracks the performance of a basket of leading altcoins, offering a consolidated view of their collective market movements. An uptrend in the altcoin index, especially when diverging from Bitcoin’s performance, is a strong indicator of an impending altcoin season. This index reflects the market’s sentiment towards altcoins as a whole, providing a macro-level insight into the shifting dynamics of the cryptocurrency market.

The altcoin index functions similarly to stock market indices, aggregating the performance of selected cryptocurrencies to gauge the overall market trend. An increasing index suggests heightened activity and bullish sentiment across the altcoin market, signaling broader market interest beyond Bitcoin.

Several financial and cryptocurrency data platforms offer altcoin indexes, each with its methodology and focus areas. Some notable examples include:

CoinMarketCap’s Altcoin Season Index: CoinMarketCap, one of the leading cryptocurrency data aggregators, provides various tools and indexes, including measures that help users gauge the market’s sentiment towards altcoins.

CryptoCompare: CryptoCompare offers a range of data and indexes, including altcoin-specific measures that track the performance of cryptocurrencies other than Bitcoin, providing insights into the broader altcoin market movements.

Bloomberg Galaxy Crypto Index (BGCI): While not exclusively an altcoin index, the BGCI includes various cryptocurrencies besides Bitcoin, offering a broader perspective on the digital asset market. It’s a collaboration between Bloomberg and Galaxy Digital Capital Management.

Blockchain Center: This Altcoin Season Index considers the performance of top altcoins against Bitcoin over a specified period. Currently, the index shows “not an altcoin season” as top altcoins haven’t outperformed Bitcoin yet.

Source: https://www.blockchaincenter.net/en/altcoin-season-index/ 

Technological advancements and new trends

Technological advancements or the achievement of key milestones by altcoin projects can spark interest, driving up prices. Developments that promise to solve long standing issues or offer new functionalities can be particularly impactful. These can range from scalability solutions to enhanced privacy features. Examples of project milestones include network upgrades or successful partnerships, which helps to validate progress.

The emergence of new blockchain and web3 innovations plays a significant role in catalyzing altcoin seasons. Innovations such as decentralized finance (DeFi) platforms, non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs) can potentially drive interest and investment into the altcoin space, as they offer new use cases and opportunities for growth within the cryptocurrency ecosystem.

Increase in adoption

When businesses and financial institutions begin to use specific altcoins for transactions or services, it creates a ripple effect, enhancing the coins’ credibility and utility. This move not only validates the altcoin’s utility but also leads to an uptick in demand, as the broader market perceives these coins as more viable and promising.

Positive community sentiments

The sentiment within the cryptocurrency community, gauged through social media buzz and forum discussions, can serve as an early indicator. An uptick in discussions and positive sentiment surrounding specific altcoins or the altcoin market in general may foreshadow an altcoin season.

Sentiment analysis involves evaluating the emotions and opinions expressed in text data, often sourced from social media or cryptocurrency forums. This analysis can provide insights into the market’s mood and potential future movements.

Viral social media trends or endorsements by well-known personalities can significantly influence the altcoin market. For example, lately when Elon Musk hinted Dogecoin as payment for Tesla, the cryptocurrency surged by 33%.  Such endorsements often lead to a swift shift in investor sentiment, funneling increased investment towards specific altcoins. 

Behavior of whales

Another indicator of the beginning of an altcoin season is the movement of large cryptocurrency holdings by “whales” from centralized exchanges to wallets. This pattern, shared by analyst Ki Young Ju, is seen as a preparatory step before a potential market upswing in altcoins, indicating a shift in trading strategy that could signal the beginning of increased altcoin activity and valuation growth.

How does altseason affect the market?

Altcoin season following Bitcoin Halving is a complex phenomenon driven by a combination of profit redistribution, the search for higher returns, increased market speculation, significant developments in the altcoin space, and diversification strategies. While the exact timing and magnitude of altcoin seasons can vary, understanding these underlying reasons can help traders navigate the market dynamics that follow a Bitcoin Halving, leveraging opportunities across the broader cryptocurrency landscape.

Increased market volatility

As traders speculate on various altcoins, price swings become more pronounced, creating opportunities for significant gains but also increasing the risk of losses. This volatility underscores the importance of risk management strategies for participants engaging in altcoin trading.

Increased liquidity 

Altcoin seasons contribute to increased liquidity, as trading volumes surge across multiple altcoin markets. This liquidity influx facilitates smoother transactions and provides a more stable environment for trading. The overall market capitalization of the cryptocurrency market expands during these periods, reflecting the increased valuation of altcoins and the growth of the sector.

Innovation and sector growth

The attention and capital directed towards altcoins often accelerate innovation and growth within specific sectors, such as DeFi (Decentralized Finance), NFTs (Non-Fungible Tokens), and blockchain infrastructure projects, which can lead to the emergence of new use cases for blockchain technology and further adoption of cryptocurrencies.

What happened during the last altcoin seasons?

2017-2018 Altcoin Season

Perhaps the most notable and explosive altcoin season occurred during the late 2017 and early 2018 period, coinciding with Bitcoin’s surge to what was then an all-time high near $20,000. Following Bitcoin’s lead, the broader cryptocurrency market witnessed unprecedented gains. Ethereum, for instance, saw its price increase from about $8 at the start of 2017 to over $1,400 by January 2018, marking an increase of over 17,000%. 

This season was characterized by a booming Initial Coin Offering (ICO) market, where numerous new projects and tokens were launched, attracting significant investor interest and capital. The total cryptocurrency market capitalization soared from about $18 billion in January 2017 to over $800 billion by January 2018, according to CoinMarketCap historical data.

2020-2021 Altcoin Season

Another significant altcoin season unfolded starting in late 2020 and stretching into 2021. This period was marked by the rise of DeFi (Decentralized Finance) and NFTs (Non-Fungible Tokens), sectors that saw explosive growth. Ethereum again played a central role, serving as the backbone for most DeFi projects and NFT transactions. Its price reflected this pivotal position, climbing from around $130 at the beginning of 2020 to over $4,000 by May 2021.

During this season, the concept of “Ethereum killers” or alternative layer-1 protocols gained traction, with projects like Polkadot (DOT), Cardano (ADA), and Binance Smart Chain (BSC) emerging as significant players. These networks offered different value propositions, including lower transaction fees and higher throughput, attracting both developers and traders.

Current state of altcoins

The current altcoin market cap of about 321.674B reflects a vibrant and evolving landscape. Established projects like Ethereum and Solana continue to play a crucial role within the crypto ecosystem, with Ethereum’s ongoing upgrades enhancing its scalability and Solana’s high throughput and low transaction costs attracting a wide range of decentralized applications and meme culture. 

Simultaneously, the altcoin ecosystem is witnessing an influx of new projects that leverage cutting-edge technological advancements. Projects like Arbitrum, which aims to improve Ethereum’s scalability through optimistic rollups, and Render, which decentralizes the process of graphics rendering, are examples of how novel solutions are driving growth. 

Here are five of the top areas where altcoins are driving innovation: 

Real-world assets (RWAs)

The tokenization of Real-World Assets (RWAs) represents a significant shift in the digital asset landscape, currently boasting a market cap of approximately $50 billion. This innovation seamlessly integrates physical assets such as real estate, artwork, and commodities with the blockchain, revolutionizing how these assets are invested in and traded. Among the leading projects in this space, Avalanche (Avax) stands out with a market cap of around $21 billion.

Highlighting the momentum in RWA tokenization, BlackRock’s venture into creating an Ethereum-based fund for tokenized real-world assets further cements the bridge between traditional finance and the digital asset world. This development is enhancing the utility of altcoins by enabling secure and fractional ownership of physical assets, potentially democratizing access to investments that were previously out of reach for the average person.

DePin

Forbes has recognized DePin as potentially the next major narrative in the web3 space. This trend marks a crucial evolution in web3, where digital incentives drive the creation of physical networks, showcasing blockchain’s applicability in the physical world beyond theoretical or purely digital realms.

DePIN challenges traditional tech paradigms by redefining tokens as more than digital assets; they are now catalysts for tangible infrastructure development. This approach upends traditional business models, offering a more democratized method for infrastructure project development. 

An example of DePIN’s impact is seen in the NATIX Network, which leverages mobile devices as AI-powered cameras to collect mobility data, rewarding users with tokens for their contributions. This model not only incentivizes community participation but also enhances the value generated for all stakeholders involved.

Interoperability solutions

As the blockchain space grows more fragmented, the demand for interoperability and cross-chain solutions has skyrocketed. Projects that facilitate the seamless transfer of assets and information between different blockchains are gaining traction. This not only enhances the liquidity and usability of altcoins across various platforms but also encourages collaboration and innovation in the ecosystem. 

Cosmos (ATOM) and Polkadot (DOT) are leading projects addressing blockchain interoperability, which is the capability for different blockchain networks to communicate, share data, and execute transactions seamlessly among each other. 

Cosmos introduces the “Inter-Blockchain Communication” (IBC) protocol, enabling data exchange and transaction processes across independent blockchains. This creates a decentralized internet of blockchains, where networks can interact without central oversight. Similarly, Polkadot employs a “relay chain” structure where various blockchains, or “parachains,” connect to a central chain yet operate independently. This setup facilitates cross-chain transactions and enhances scalability and security across its ecosystem. 

Both Cosmos and Polkadot fosters a unified, efficient blockchain network, illustrating the practical steps being taken to bridge disparate blockchain systems.

Decentralized Finance (DeFi)

Amid these advancements, Decentralized Finance (DeFi) continues to hold a foundational place in the altcoin ecosystem. Established as a beacon of financial innovation, DeFi has irreversibly altered the landscape of financial services by introducing decentralized lending, borrowing, trading, and more. Its continued relevance lies in its ability to underpin and enhance new blockchain technologies, ensuring that the principles of open access, decentralization, and transparency remain at the forefront of the evolving digital economy. 

As the blockchain space matures, DeFi’s foundational frameworks serve as the backbone for emerging applications, illustrating its indispensable role in the altcoin market’s expansion.

Meme Coins

The Meme Coin phenomenon has evolved from a niche curiosity to a significant force in the cryptocurrency market, with a collective market capitalization reaching approximately $63.5 billion. This is further underscored by a substantial trading volume of around $11 billion.. Elon Musk’s statement about the potential of meme tokens like Dogecoin being used to purchase Tesla cars one day adds a significant layer of credibility and future utility to the meme coin phenomenon.

Beyond the well-known examples of Dogecoin and Pepe, a new generation of meme coins, including WIF, BOME, and others, have emerged. These tokens reflect a growing trend where the power of community engagement and social media can catapult digital currencies from obscurity to mainstream recognition almost overnight. 

Unlike traditional assets, the value of meme coins often hinges on social sentiment and community-driven initiatives, blending humor with investment and showcasing the unique, speculative dynamics of the digital age. This movement highlights not just the financial potential of meme coins but also their role in fostering a sense of belonging and participation among traders, making them a fascinating study in market psychology and community influence.