By James Davis
Despite the ongoing crypto winter, traders may still make huge profits once the ‘altcoin season’ comes around. This guide thoroughly explains everything regarding the altcoin season, from the opportunities and risks to trading strategies.
What is Altcoin Season?
Altcoin is a short form for the phrase alternative coin. Other than BTC, all the other cryptocurrencies are referred to as altcoins. Simply put, the altcoin season is a period when these altcoins witness massive price increases and outperform BTC.
The assumption is that a cryptocurrency like Bitcoin, which has a market capitalization of over $500 billion, finds it tough to post a significant price surge, but it is easy for an altcoin with a market cap of, let’s say $3 million to move from $20 to $100 quickly.
Bitcoin Dominance
BTC is undoubtedly the most popular and traded cryptocurrency. That explains why it has the largest market cap. Its dominance in the crypto market plays a big role in signaling whether the altcoin season is about to start or not. Here is how: when Bitcoin’s dominance is high, it indicates investors are not interested in altcoins just yet, and when it declines, it shows that investors are moving their funds to altcoins.
Factors Influencing Altcoin Season
Here are the factors that fuel the start of the altcoin season.
Market Sentiment
Market sentiment is a reflection of the collective psychology of investors and traders. That is when many traders believe it is time to transfer their funds from Bitcoin to other cryptocurrencies; the selling pressure causes BTC’s price to decline.
Market sentiment plays a massive role in the success of meme coins. These crypto assets tend to surge in value when traders talk positively about them on social media platforms. The excitement created around a particular meme coin leads to increased buying pressure.
One way to effectively monitor market sentiment is using the Crypto Fear and Greed Index, which displays various information such as social media activity, price volatility, market momentum, and trading volume.
During an altcoin season, investors’ risk appetite increases, allocating significant funds to altcoins. The escalated interest in these assets shifts the market sentiment and is indicated as ‘Greed’ in the Crypto Fear and Greed Index.
News and Events
Major events and news, such as regulatory actions or partnerships, can fuel interest in a particular altcoin driving its price up. That said, it is vital for investors and traders to pay close attention to new developments.
Technological Developments
When altcoins introduce innovative features or blockchain upgrades, there is a likelihood that they will attract investors. A good example is Arbitrum. This project recently launched a layer-2 network to improve the performance of the Ethereum blockchain. As a result, Arbitrum (ARB) saw its price surge significantly.
Trading Strategies During Altcoin Season
You must have an effective trading strategy to realize gains in any altcoin season. Proper use of technical analysis tools like indicators and chart patterns can help you to identify the entry and exit points more accurately.
Besides these tools, you can practice what’s known as whale watching. It involves keeping a closer eye on the activities of institutional and wealthy individual investors who hold huge amounts of crypto assets. You can track their activities on blockchain explorers to determine what assets they are buying or selling. For example, if you find out they are buying a specific altcoin more, you can anticipate a surge in its price and make a trading decision accordingly.
Opportunities and Risks in Altcoin Season
While earning substantial profits from trading altcoins is possible, you should also be aware that altcoin season carries several risks. The obvious one is the high market volatility. Wild price movements can cause you to blow your trading account within minutes.
With that said, adopt proper risk controls, like setting a stop loss, before opening any market position to avoid losing all your money.
Another risk associated with the altcoin season is that many crypto assets have low liquidity. This makes entering or exiting a trade at the desired prices difficult.
Conclusion
As the crypto market evolves, altcoin seasons will likely continue being a focal point for investors and traders looking to maximize their profits. However, always keep in mind the risks involved in altcoins.