Is Alt Season on the Horizon?

Plus: This week’s winners and losers

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Last week we discussed how smart contract platforms such as Ethereum have been outperforming Bitcoin. As this trend continues and ETH hits yearly highs vs BTC, we discuss signs of a potential “alt season” emerging and discuss whether this term is still accurate as sectors within crypto become more differentiated.

Finally, we cover some of the winners and losers in crypto markets this week as well as the catalysts driving the recent price action.

Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.

• Bitcoin’s network fees increased slightly as price consolidates above $55,000
• Ethereum’s fees also grew week over week, reaching its sixth consecutive week of total fees surpassing $300 million for the first time

Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.

• Bitcoin recorded nearly $2 billion in net outflows from centralized exchanges, the highest level in five weeks
• $450 million worth of Ether also left exchanges, decreasing the supply available to be sold for both BTC and ETH

Is Alt Season on the Horizon?

For years now, traders have yearned for so-called alt seasons where typically smaller cap crypto-assets record double to triple-digit returns within a matter of weeks. While the global crypto market is currently at a higher order of magnitude at $2.6 trillion, there are potential signs emerging mirroring previous alt seasons.

Source: TradingView

ETH/BTC Breakout — Ether’s price in Bitcoin terms hit a 42-month high

• Last two times ETH set new yearly highs (on January and April of this year) where followed by periods of high growth for the second crypto-asset as well and smaller cap altcoins
• If ETH/BTC holds above 0.08 it could point to higher risk-appetite trickling down crypto markets

Historical data also suggests monthly seasonality favors alt coins in December.

Bullish month — December has historically averaged returns of 38% for crypto-assets excluding Bitcoin

• The 2017 bull market infamously peaked in early January of 2018 after having alt coins nearly triple in December
• Many in the market may be expecting bullish price action due to this historical precedent, though having grown by 30% already in Q4 this may already be priced in

As of December 2, 2021 using IntoTheBlock’s Bitcoin and Ether exchanges netflows

Accumulation continues — The magnitude of Bitcoin and Ether leaving centralized exchanges is reflective of the positive expectations for the end of the year

• Nearly $10 billion worth of Bitcoin has left centralized exchanges in Q4
• $5.6 billion net of Ether has been withdrawn, representing 1.05% of its market cap, compared to 0.88% of Bitcoin leaving exchanges

Is alt season even a thing anymore? The term certainly sounds dated as the crypto space expands beyond currencies into diverse use-cases

• Different sectors within crypto have established their own trends throughout the past bull market, leading to lower correlations in longer time frames
• This became apparent with DeFi tokens in summer 2020, then with NFTs in the summer of 2021 and more recently with metaverse-related tokens
• Ultimately, this may mean if an “alt season” comes, it could benefit certain sectors more than others
• One final caveat is that Omicron fears and the broader macro environment could ruin hopes of fireworks for crypto markets to end the year in the case of potential market panic

Winners & Losers

As mentioned earlier, sectors within crypto are establishing different trends. While the past few weeks saw layer 1 blockchains outperform, this week Polygon, the layer 2 ecosystem built on top of Ethereum, saw returns of 11%.

As of December 2 through IntoTheBlock’s MATIC financial indicators

Behind the recent growth — Polygon has seen positive developments both in terms of on-chain activity and ecosystem news

• As seen above, large transaction volume spiked significantly in the past two break-outs for MATIC, suggesting high conviction from institutional players
• Polygon unveiled a third zk-rollup solution, Midas, to help scale Ethereum
• The listing of an exchange-traded product (ETP) of MATIC in Europe is expected to drive inflows into the token

As of December 2 through IntoTheBlock’s PUNK financial indicators

In contrast — CryptoPunks and NFTs broadly have corrected following their summer hype cycle

• Floor prices of CryptoPunks are down over $100,000 in the last month
• Trading volume throughout the NFT space have dropped 26% just this week based on CryptoSlam

Similarly, Gala and Enjiin which had been benefitting from the metaverse-token rotation saw sharp corrections of over 20% this week.

Bottom-line — The ebb and flow of these sectors suggest we may be heading more towards cycles for specific group of tokens based on recent trends and momentum.

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