“When Altseason?” — How to Time the Most Profitable Period in the Cryptocurrency Market
Altseason is like Christmas in the cryptocurrency space.
Altseason, a shorthand for Altcoin Season, is the time of the year when the majority of the people in the cryptocurrency market develop a very positive sentiment about Altcoins.
This translates into exponential gains across Altcoins (i.e. Alternative coins to Bitcoin).
In the past, Altcoins have enjoyed immense gains during Altseasons.
Most notably in December 2017 which saw most (if not all) Altcoins gained their initial market valuation many times over during a period of a few weeks of constant, almost uninterrupted uptrends.
Whether you’re trading or investing in Altcoins to make more Bitcoin or more fiat, Altseason is a period in the market where most traders and investors make the bulk of their profits during a year.
Like the flower business where most of its revenue comes from one single day and that’s Valentine’s Day (1 day out of 365 days = ~ 0.3%).
In 2017, Altcoins enjoyed immense gains for a total of approximately 10 weeks, which translates into 19% of the year.
Altcoins rallied in May 2017 for about a month.
And in August 2017 and December 2017 for a few weeks each.
But 2018 marked the year of the cryptocurrency market going through an extended hangover from the exponential rally of December 2017 which saw Bitcoin make new All Time Highs (ATH) at $20,000.
For this reason, 2018 only managed to offer the cryptocurrency community fairly short-lived Altseasons in April and arguably in September/October.
Altseasons have been few and far between in 2018 which is why many in the cryptocurrency community on Twitter (a.k.a. “Crypto Twitter”) have been consistently asking cryptocurrency analysts such as myself the following question:
In this article, I will reveal a useful metric that I use in timing Altseasons and explain how you could use it, too.
The Ultimate Metric for Timing Altseason
A useful metric for understanding when Altseason may occur is Bitcoin Dominance.
Bitcoin Dominance is the percentage amount of the Total Cryptocurrency Market Capitalisation that is Bitcoin’s.
In other words, Bitcoin Dominance represents how many people in the market are currently buying and holding Bitcoin.
There are two core principles you should remember about Bitcoin Dominance.
Bitcoin Dominance increases when more and more people buy or simply hold Bitcoin.
Bitcoin Dominance decreases when more and more people sell Bitcoin.
Just at a glance at these two core principles, you can see that stocking up on Altcoins when Bitcoin Dominance is in an uptrend isn’t an ideal strategy.
That is because people are more willing to hold Bitcoin rather than Altcoins.
This usually translates into people buying Bitcoin and selling Altcoins.
In other words, this usually translates into Bitcoin’s price increasing and the price of various Altcoins decreasing.
Holding Altcoins at such a time would be a losing trade and a significant opportunity cost. Not only do you lose money with Altcoins when Bitcoin Dominance is uptrending, but you lose the opportunity to make money with Bitcoin.
But when Bitcoin Dominance decreases — that is a totally different story.
As Principle #2 suggests, Bitcoin Dominance decreases when more and more people offload Bitcoin.
How do you offload Bitcoin?
Two ways — either by:
a) Selling Bitcoin to fiat (e.g. Dollar, Euro, Pound) or by,
b) Selling Bitcoin for Altcoins.
As you can imagine, it is the best time to be holding Altcoins when Bitcoin Dominance is decreasing.
Reason being more people are buying Altcoins at the expense of Bitcoin, driving up the prices of Altcoins as a result.
In line with this reasoning, you can see from the Bitcoin Dominance chart below that Altseasons have occurred when Bitcoin Dominance experienced declines.
In fact, the strongest performing Altseasons occurred when Bitcoin Dominance experienced the sharpest declines.
This introduces us to two additional principles about Bitcoin Dominance:
When Bitcoin Dominance decreases, people are more likely to buy Altcoins, leading to Altseasons.
The sharper the decline in Bitcoin Dominance, the stronger the Altseason.
Why we are on the brink of an Altseason
Sharp declines in Bitcoin Dominance have always led to massive valuation gains in Altcoins.
Therefore, in order to time an Altseason, it’s important to assess the likelihood of a sharp decline in Bitcoin Dominance.
At this time, the most important level for Bitcoin Dominance is the 50% Dominance level.
The 50% mark is crucial and here’s why:
The 19th of December was the last time that Bitcoin Dominance broke the 50% level (i.e. the green dashed horizontal line on the chart), leading to the greatest Altseason in the history of cryptocurrencies.
Since then, Bitcoin Dominance bottomed at 32% and has made its way above the 50% mark again, even bouncing from it in mid-August, early October of 2018, and…
On the 2nd of January 2019.
According to historical Bitcoin Dominance data, breaking down from the 50% level has resulted in exponential increases in the price of most (if not all) Altcoins in the cryptocurrency market.
A breakdown from the 50% mark has happened only once.
But when it happened, Bitcoin Dominance decreased in a sharp, accelerated downtrend, leading to asymmetrical outcomes in the Altcoin market.
What happens next?
Past data trends don’t always translate into future data trends but in the words of Mark Twain — “history doesn’t repeat itself but it often rhymes.”
A breakdown from the 50% Bitcoin Dominance mark significantly increases the chance of an Altseason happening.
Of course, Bitcoin Dominance could rebound from the 50% mark and continue to the upside and there are some technical arguments for this scenario.
Ultimately however, it is important to be able to appreciate, with a level-head, the historical significance of the 50% Bitcoin Dominance level and the fact that alternative cryptocurrencies (i.e. Altcoins) may potentially be at an important crossroads for their price action.
More importantly, it is about developing an understanding about the curious interplay between Bitcoin Dominance and price action of these Altcoins.
Altseason may or may not happen today.
Altseason may or may not even happen a week from now.
But when it does happen, it would be wise to at least be prepared for it.
Thank you for reading.