A new alt season has arrived, at least according to some crypto industry commentators. Over the past month, altcoins, also known as non-Bitcoin cryptocurrencies (BTC)—have risen in price, with projects like Solana, Cardano and Polkadot having tripled the value of their tokens. However, while people shout “alternate season” with an air of familiarity, the industry is still exploring uncharted territory.
the Cointelegraph Markets Pro Alternate Season Indicator affirms that the industry is in full high season, showing an inclination of 32%. While The Altseason Index, which defines altseason as a 90-day period in which 75% of the top 50 altcoins outperform Bitcoin, it says It’s not an alternate season yet. But if the last few weeks are anything to go by, the altcoin market is just getting started and is already showing its desire to impress.
One theory behind why an alt season is imminent is that the general sentiment around Bitcoin has reached a solid footing. Bitcoin outflows are funding more altcoin projects, resulting in newly launched tokens reporting impressive growth. However, could there be much more to the story than that?
Was it alternate season?
Alternate seasons can be both good and bad for the crypto economy, being something of a necessary evil in the space. On the one hand, they are a sign of health, indicating that new money is flowing into the market and causing valuations to rise. However, after a while, speculation tends to outstrip the usefulness of these tokens, causing sharp market corrections and immense losses for speculators.
In recent years, the cryptocurrency and digital asset space has grown dramatically, but according to Hunain Naseer, Senior Analyst at OKEx Insights, there isn’t much new this time around. “We are witnessing Ethereum breakout against BTC and starting to outperform the market leader. The same thing happened in previous alt seasons,” he said, adding, “ETH is leading a market-wide surge and as long as it stays strong, the trend may continue through the end of the year.
According to Naseer, the recent altcoin rally is being driven by a myriad of factors, including the recent non-fungible token boom (especially in August), which reaffirmed the market’s belief in the speculative value of digital assets. The recent flurry of positive news has also generated renewed optimism in the market, with Announcements for Ethereum London Hard Forkthe launch of smart contracts on Cardanoand cross chain bridges in Cosmos.
The shift away from more traditional “blue chip” investments in the space like Bitcoin and Ethereum could also reflect current market risk sentiment, meaning investors are increasing their risk tolerance due to a more buoyant market outlook. Altcoins are naturally more volatile than Bitcoin due to their smaller market caps and lower liquidity, but while this means they can cause investments to lose value fairly quickly, they also have the potential for huge profits.
The market cap of stablecoins has grown up from $36 billion in January to more than $115 billion in mid-September, with Tether’s (USDT) supply triples during the period. Stablecoins, though not exactly altcoins, have become the primary means of value transfer on blockchain networks, and this expansion is a decent representation of the growing influence of decentralized finance (DeFi) in the world. space.
A well-diversified portfolio can protect investors from risk while ensuring they get in on some of the recovery action. This makes altcoins as a whole quite attractive as an investment class, but all this money has to come from somewhere. With altcoin flows on the rise, a big BTC selloff could be on the cards, but institutions seem to be more bullish on Bitcoin than ever.
According to Rachel Lin, co-founder and CEO of decentralized derivatives exchange SynFutures, Bitcoin isn’t going to crash, it’s just lagging behind in performance: “I expect the overall crypto market to continue to trend up in the coming months, especially with the Fed remaining dovish and new funds and institutional investors entering the market”.
Neither Bitcoin nor altcoin
One major difference between previous alt seasons and this one is how dominant Ether is (ETH) has been converted. Bitcoin held almost 70% of the cryptocurrency market capitalization at the beginning of the year, while Ether controlled less than 13%. As of Thursday, Ether accounts for nearly 19% of the market, while Bitcoin dominance has fallen below 41%.
DeFi has attracted more institutional investors to the space than anything before, and this is slowly bringing more legitimacy and awareness to the space. “Even with the sheer number of competitors in the space and its network congestion, Ethereum will continue to grow,” said Michael Tzezailidis, director of public relations for Telos, a Web 3.0 blockchain platform, adding: “Developers are literally flooding space.”
Many DeFi projects run on the Ethereum network, and while competition is increasing, it doesn’t seem to be losing steam any time soon. The altcoin market has grown from $220 billion to $1.35 trillion this year alone, a 600% increase in just nine months, with Ethereum playing a big role. Some don’t even consider ETH as an altcoin anymore, and this begs the question: Will other altcoins eventually drop the label as they grow above a certain threshold?
For quite some time, Bitcoin’s main value proposition has been its usefulness as a store of value and its deflationary offering, but while BTC is sure to continue to receive investor attention, the lower market caps of altcoins generate higher returns to short term. Additionally, institutional capital is more likely to find its way to altcoins with a smaller total market capitalization during an altseason.
Ultimately, Ethereum’s switch to proof-of-stake (PoS) and protocol updates to deflate its supply could make ETH a real contender for the top spot. Investors could bet on a smoother inflation curve for ETH and a stronger ecosystem, making it the go-to asset for other altcoins to follow or compete with.
It’s the season?
As people around the world continue to learn about cryptocurrencies and their ability to solve global problems like remittances and monetary efficiency, more capital is entering the digital asset space. “This is about education,” said Cabital CEO and co-founder Raymond Hsu. In recent years, digital assets have broken new ground, and with the whiff of an alternate season in the air, blockchain could see a more global focus on how it can best solve real-world problems.
According to Hsu, institutional investors will do what most retail investors do when initially exploring the world of crypto: buy Bitcoin and then move on to Ether. He said:
“After they feel comfortable, they will start looking at other projects that address the more complex challenges.”
The traditional financial institutions that opposed the concept of cryptocurrencies a year ago are now set up trading desks and offer clients greater exposure to the digital asset space through all kinds of financial instruments. Terms like “Bitcoin” and “blockchain” are slowly becoming household names, and growing mainstream adoption could mean this alternate season could produce more permanent effects.
Although DeFi appears to be thriving primarily on Ethereum, competing projects are setting the stage for the shared interoperable decentralized framework for financial applications that blockchain will evolve into. While it may take some time for them to start hosting as many decentralized applications as Ethereum or even reach comparable levels of composability, competition almost always benefits consumers. In decentralized systems, everyone is a consumer and more competitive pressure could accelerate the already rapid growth of the space.
Altcoins have grown tremendously in the last two years, and as these projects continue to serve the needs of the blockchain space, either by solving unsolved problems or improving existing solutions, this trend is likely to continue its trajectory.
The jury is still out on whether an alternate season is imminent, but a look at the markets shows stark similarities to past events, and with the amount of positive news and innovative projects released regularly, this season might even last a bit longer than anticipated.