In this bull market, Bitcoin has been the standout performer while altcoins have remained relatively quiet. This is a different situation compared to previous bull markets, so how should investors respond? This article, sourced from Crypto, Distilled, a prominent crypto KOL, provides analysis on the reasons behind this phenomenon and offers optimization strategies for investors.
What is the “Altcoin Season”?
Altcoin season refers to the period when altcoins outperform Bitcoin and their prices soar. It is a time of rapid development in the altcoin market driven by optimistic sentiment, similar to a rising tide lifting all boats. Altcoin season fuels the development of almost all projects, with a surge of liquidity entering the market.
Liquidity Tracking
Historically, liquidity primarily comes from two sources:
1. Retail funds flowing into centralized exchanges (CEX).
2. Bitcoin flowing from CEX to altcoins on the same exchange.
Then, liquidity flows down the market cap ladder. The OGs in the market are well aware of this dynamic and often refer to it as the “path to altcoin season.”
The Lalapalooza Effect
In 2021, the path to altcoin season was clear, but it has since disappeared. The author suggests that this is the result of multiple factors working together, which the late renowned investor Charlie Munger described as the “Lalapalooza effect.”
What impact do these multiple factors have?
1. Project Saturation
Although market liquidity is abundant, projects are extremely saturated. Imagine a sea with more ships than waves. Only certain areas, such as the AI field or SOL ecosystem, will experience the true wave of altcoin season. The previous “rising tide lifts all boats” has evolved into a selective rotation game, similar to the PvP nature of “The Hunger Games” movie (projects competing with each other).
2. Token Dilution: The Invisible Brake
Token dilution, especially from token unlocks, has suppressed altcoin season similar to 2021. This often overlooked factor absorbs a significant amount of liquidity. No matter how good a project’s technology is, if the supply outweighs the demand, prices are unlikely to rise.
A community user, @thor_harvisten, conducted a sampling survey of tokens launched since 2024. The average circulation rate (circulating supply / total supply) of these project tokens is approximately 14%, with around $70 billion worth of tokens waiting to unlock.
What happens when project saturation combines with token supply surplus? Altcoin season becomes difficult to sustain.
3. Increased Adoption: A Double-edged Sword
Increased adoption in traditional sectors is both a good and bad thing. On one hand, it enhances the credibility of cryptocurrencies, but on the other hand, it makes the industry more competitive. If more smart people shift their focus to cryptocurrencies, finding industry opportunities becomes even more challenging.
4. Bitcoin ETF: A New Dynamic
The approval of Bitcoin spot ETFs has changed the landscape for altcoins. Before ETFs, the main gateway to Bitcoin was through CEX. This was beneficial for altcoins as investors could easily switch from Bitcoin to altcoins. However, this time, the buyers are different. Those who bought Bitcoin through ETFs do not directly enter the altcoin market.
5. Impact of the COVID-19 Pandemic
Why is 2021 so different for altcoins? It is largely due to the unique environment. In a lockdown environment, there was a high influx of funds and screen time, creating perfect conditions for retail investors to enter the cryptocurrency market.
Given the rarity of this situation, it is reasonable to consider 2021 as an outlier. While everyone is still immersed in the climax of 2021, the glory is no longer there.
In summary, the reasons for the “disappearance” of altcoins are as follows:
1. The altcoin market has shifted from rapid growth to a rotational game.
2. As market intelligence increases, finding opportunities requires more effort.
3. Project saturation, combined with supply surplus, is depleting liquidity.
4. The traditional path to altcoin season has been disrupted due to Bitcoin ETFs.
Considering the current market environment, here are some strategies for users to cope:
1. Monitor fully diluted valuation (FDV) and saturation closely.
2. Pay close attention to the development of ETFs and areas with significant institutional participation, such as RWA. These may present different tracks or more favorable dynamics in the coming years.
3. In a market flooded with altcoins, don’t just focus on the dollar value of projects. Comparing altcoin valuations with Bitcoin valuations can provide a more accurate assessment of their strength.
4. Put in more effort to gain an advantage. This is not only to increase assets but also to enhance knowledge, skills, and networking.
Conclusion
There are still plenty of opportunities in the crypto market, but they require more effort and a fresh perspective. The landscape is constantly changing, and those who can adapt quickly are more likely to succeed.