Few traders would argue against the fact that Bitcoin (BTC) is in a bull market, but there is less consensus on whether the market is in the middle of an “altcoin season”. A quick look at Crypto Twitter reveals the schism between traders who are certain we are in the middle of the old season and those who believe it has not started yet.
Typically, traders rely on a variety of indicators and metrics, such as Bitcoin’s total market cap compared to altcoin’s total market cap, Bitcoin’s dominance rate, and whether or not low cap altcoins have increased by a certain percentage.
As is the case with investing, too much signal can sometimes lead to mixed results. So, Cointelegraph decided to speak to Ben Lilly, co-founder and analyst at Jarvis Labs, to see where he and his company believe the market is right now and to determine the most appropriate metrics to determine if a Altcoin season is really coming or not.
Cointelegraph: A number of analysts claim we are in, or at least about to, an altcoin season. Some look at support / resistance flips and fractals on altcoin market cap charts (isolated from BTC’s market cap) for compelling arguments. Why do you think we’re not anywhere near an altcoin season?
Ben Lilly: I believe that every interpretation of what defines an altcoin season is different. For many, there may be an altcoin season when both BTC and altcoins rise higher. This is in contrast to Bitcoin’s rise while altcoins stay flat or fall.
I think this is a fair view of the altcoin season, but it’s not necessarily one that I subscribe to. Just because this is a definition for altcoin season doesn’t make it a compelling reason for me to switch from bitcoin to altcoins from a risk-adjusted perspective.
Because in this definition of the altcoin season, Bitcoin is still the preferred asset.
We view the altcoin season as market moves that surprise people, or at least make traders rethink the normal.
CT: So the altcoin seasons do not reflect a trend shift at the macro level in the market direction of the dynamics of Bitcoin?
BL: To come back to what I said earlier, support and resistance are helpful explanations. We can think of these as areas that, when broken, generate quick price action. This is the kind of action you want to be exposed to provided you are on the right page. While everything between these carriers and resistances can almost be assumed as “expected” or normal – in a loose sense.
To find out where this area might be, we can look at a bitcoin dominance graph. This lets us know what percentage of the market Bitcoin represents. At the moment it is a range, ie an “expected” range. And because it is trending down, this is good for altcoins as Bitcoin gives some dominance to other coins.
While many may point this out and say that it is an “altcoin season,” I would like to point out that this type of activity usually takes place on a bull cycle because new money is coming in.
In fact, we have been trading in this expectation range from mid-2019 onwards, which coincides with the point when Bitcoin bottomed out and started to get bullish.
Oddly enough, we jumped out of this area recently in late 2020, and when we did, Bitcoin had an absolute rift. Altcoins lost value during this run. And similar to how Brent Johnson describes his dollar milkshake theory, Bitcoin depleted the market’s liquidity as it ran higher.
Since then we have returned to this expectation area, which is also known as the normal market area.
If the opposite happens and we break this expected range down, it means from our point of view that altcoins are the capital to sit in as they generate oversized returns compared to Bitcoin. Then things get wild.
CT: For years, traders have identified the shift in the dominance rate between BTC and altcoins as a relevant indicator for the start of the altcoin season. As the theory suggests, when the price of Bitcoin is consolidating or in a downtrend and its dominance rate falls below a certain percentage, altcoins will take advantage of Bitcoin’s reach-bound action by rising higher. What are your thoughts on that?
BL: Much like explained before, it’s all about expectations. As soon as the market creates a change in what is normal, “Altcoin Season” appears.
Another chart that I often rely on is the ETH / BTC pair. In general, if Ether is winning in terms of BTC, it is a good sign for Altcoins. And lately there has been bullish momentum on the chart within the current expectation range.
The ETH / BTC pair currently forms the so-called Livermore accumulation cylinder. We have been discussing this for more than a month in our free “Espresso” newsletter from Jarvis Labs Substack. It is clear that the chart is taking shape and is at a later stage in its trend.
When ETH / BTC breaks out of this cylinder, it will be another moment when expectations are adjusted to the normal. This is when we will see rapid price movement and likely an altcoin season.
CT: While a rising tide is lifting all boats, altcoins have been the top performers in the market when compared to bitcoin. A quick look at CoinMarketCap reveals that it has taken at least 50 steps well over 100% and the altcoin market cap has grown from $ 250 billion in January to nearly $ 900 billion today. What do you think is the single most important signal that the market is in a proper altcoin run?
BL: This is a bit different than an altcoin season in my opinion. This is because a real bull run for altcoins is for investors to cross the risk curve of crypto rather than just buy bitcoin, which doesn’t necessarily mean oversized profits compared to bitcoin.
Based on this definition, we can argue that whenever bitcoin dominance declines while crypto as a whole is in a bull market (as it is today), this is a bull market for altcoins.
While investors on a proper altcoin bull run may not have made oversized profits compared to Bitcoin as they would in an altcoin season, in this environment it is wise to start building exposure to these riskier assets.
CT: Does on-chain data have any value in determining when the seasons start?
BL: Absolutely. On-chain is very valuable when you know how to filter out any noise associated with it. With crypto, there is so much transparency when it comes to displaying transactions in the chain. This creates a wealth of data that can be viewed in hundreds of different ways, many of which are somewhat meaningless.
At Jarvis Labs, we filter out all the data to find the data that matters. Then we run it through algorithms to generate trading signals. It is high quality data analytics that are typically used in place of internal analysts.
In the chain, on-chain is still a developing space outside of Bitcoin and Ethereum. We’re on half a dozen blockchains watching these signals play out, and generating a variety of reliable signals will better pinpoint when trend shifts happen and altcoin seasons begin and end.
One simple thing that traders can follow to see the progress of an altcoin season is USDT currents.
When altcoin season comes, USDT will likely flow into other Layer Two protocols like Polkadot, Cosmos, and Solana. This is because many small-cap assets that are very far from the risk curve and bought in such environments are more likely to exist on decentralized rather than centralized exchanges.
When investors start buying up these small-cap assets, liquidity will arrive, and USDT is the most ubiquitous form of liquidity in the market.
With USDT entering these ecosystems by the hundreds of millions, you can be sure that it is altcoin season as investors are only tracking these assets on DEXs that are on their log (i.e. serum).
CT: Is it possible that the narrative will change and that some altcoins will break away from their faith in Bitcoin’s performance and change what an altcoin season might look like?
BL: The changing risk landscape is how I see this particular question.
And as other assets increase in market capitalization and age, network effects will increase. This, in turn, isolates many crypto assets from Bitcoin as a lot of value is attached to them.
In this way, altcoins will diverge slightly from BTC’s performance over time.
Ethereum will be the first capital to do this simply because of where it is in terms of its life cycle and evolution. However, in terms of immunity to Bitcoin’s price, this will not happen for many years. In fact, I think there will always be some correlation to some degree.
There are macroeconomic reasons for this. Simply put, commodities as a whole tend to correlate with each other, stocks as a whole tend to correlate, and even currencies tend to move together (i.e. USD, CHF, JPY). In saying this, crypto as a whole is likely to move together for at least most of this decade, if not longer.
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