Altcoin Waves: A linear combination for altcoin season modeling

Introduction

Published in

Coinmonks

5 min readMar 20, 2021

The altcoin season is a different cycle in the cryptocurrency market that is often used to enable incredible earns for professional traders. Oftentimes, the market movement follows from Bitcoin Season to Altcoin Season [1].

However, beginners have difficulties acquiring the sophisticated knowledge needed to identify when to buy and sell altcoins.

In this context, a model was developed based on the linear combination to predict the altcoin season (2020–2023) using the market cap of the three most important altcoins and subsequent data treatments with an R statistics platform.

Altcoin Waves data treatment

Alternative coins are very younger coins, “altcoins”. There was just one altcoin wave and it is not interesting to me. At some point, I thought about giving up, but my wife told me to never give up and to tell the truth, that this model was even more uncertain than Bitcoin Waves [2]. Nice shot! Let´s do it.

The top 3 altcoins market cap (Ethereum - ETH, Cardano - ADA, and Binance Coin - BNB) of just one wave was used (2016>2020), as can be observed in Figure 1.

Figure 1. Top 3 altcoins market cap — 1st altcoin wave.

Data prices were extracted from Coinmetrics [3], 2016 to 2021. Considering just 1st wave, max altcoin market cap day occurred 546 ± 12 days after the bitcoin halving (2016–7–09), 95% confidence level. The 2nd altcoin wave (2020–2021) was used to test the model.
Data import, pre-processing, and multivariate procedures were conducted out using R software [4] with Signal Processing (signal) [5], Dynamic Time Warping (dtw) [6], and Latent Semantic Analysis (lsa) [7] packages. All data processing was performed using the free R software from the R Foundation for Statistical Computing. Use R!

Altcoin Waves model

The Altcoin Waves model provided an opportunity to study this important topic such as the altcoins market, because many people buy altcoins and then wait for the moon, but in fact, the market occurs in waves. Based on the Bitcoin Waves hypothesis that is possible to predict the next waves by approximating the future waves as linear combinations of prior waves, the Altcoin Waves model was built.
Using the 1st wave (2010 > 2012) of bitcoin to predict the 2nd wave (2012 > 2016) of Bitcoin by the Bitcoin Waves model, the cosine similarity was 83.98%. In this way, the 1st altcoin wave was created by combining the waves from the top 3 altcoins market cap (Figure 2).

Figure 2. The 1st altcoin wave: ETH (green), ADA (blue), and BNB (orange)

Figure 3 shows the Altcoin Waves model processed and projected in the present scenario (2021). The model does not provide evidence of its reliability and validity because of sampling (Just one sample, forgive me for this, Berzelius), cosine similarity 89.07%. This is a hypothesis (Altcoin Waves) of the hypothesis (Bitcoin Waves).

Figure 3. *Altcoin Waves* model (blue) and real data (red) projected in 2021.

Finally, the derivative tests presented in a previous article [8] were used to find the time to sell, as can be observed in Figure 4.

Figure 4. All altcoins market cap vs 2nd derivative scaled (autoscaling).

The first important information from Figure 4 is that in the best moments to sell, the 2nd derivative is very negative. In other words, according to the model, the predicted best time to sell altcoins after May 2020 halving will be someday between 2021–06–08 and 2021–07–07 (Possible Profits: Between +450% and +1400%), but this depends on the Bitcoin Waves model matches the date of the max price of Bitcoin. Again, CZ would say, this is not financial advice, it is a simple model and an opportunity to test this hypothesis of hypothesis.

Conclusion

The fragile model reported here provides an illustration of the altcoin season between 3rd and 4th bitcoin halving from Ethereum, Cardano, and Binance coin data. By studying this topic, beginners and professionals can gain a general insight into the altcoins market.

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Acknowledgments

The author is grateful to Satoshi Nakamoto, Hal Finney, Nick Szabo, Changpeng Zhao, Sabrina Moraes, Fernando Ulrich, André Fauth, Criptomaníacos, and Vela Trader.