Few traders would dispute 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 shows the schism between traders who are certain that we are halfway through the altcoin season and those who believe that it has not yet begun.
Typically, traders rely on a wide range of indicators and metrics, such as total Bitcoin market capitalization versus total altcoin market capitalization, Bitcoin’s dominance rate, and whether small-cap altcoins have risen by a. certain percentage.
As is the nature of investing, too many signals can sometimes produce mixed results, so Cointelegraph decided to have a chat with Ben Lilly, co-founder and analyst of Jarvis Labs, to see where he and his firm think the market is currently and to determine the most appropriate metrics to use to find out if an altcoin season is really at hand.
Cointelegraph: Several analysts claim that we are in an altcoin season, or at least on the verge of one. Some look to the support / resistance turns and fractals of altcoin market cap charts (isolated from BTC’s market cap) to make a compelling case. Why do you think we are not close to an altcoin season?
Ben Lilly: I think each one’s interpretation of what defines an altcoin season varies. For many, altcoin season could exist when both BTC and altcoins are moving higher. This is opposed to Bitcoin rising while altcoins remain flat or fall.
I think this is a fair view of the altcoin season, but it is not necessarily one that I subscribe to. Simply because if this is a definition of altcoin season, it is not a compelling reason for me to turn away from Bitcoin and into altcoins from a risk-adjusted perspective.
Because in that seasonal definition of altcoins, Bitcoin is still the preferable asset to own.
We think of altcoin season as market movements that take people by surprise or at least make traders rethink what is normal.
CT: So the altcoin seasons don’t reflect a macro-level trend reversal in the market direction of Bitcoin’s momentum?
BL: Well, going back to what I said before, supports and resistances are useful ways of explaining. We can see them as areas that, when broken, create rapid price action. It’s the kind of action you want to expose yourself to, assuming you’re on the right side of it. While everything between these supports and resistances can be assumed almost as “expected” or normal, in a broad sense.
To find out where this zone could be, we can look at a Bitcoin domain graph. This allows us to know the percentage of the market that Bitcoin represents. Right now, you are trading in a range, that is, an “expected” range. And since the trend is down, this is good for altcoins, as Bitcoin gives some dominance to other currencies.
While many might point to this and say that it is an “altcoin season,” I will point out that this type of activity tends to occur in a bull cycle because new money is coming in.
In fact, we have been trading in this expectation range since the middle part of 2019, which coincides with the time when Bitcoin found its low and started to turn bullish.
Interestingly, we recently jumped out of this range in late 2020, and when we did, Bitcoin launched into an absolute race. During this run, altcoins lost value. And similar to how Brent Johnson describes his dollar churn theory, Bitcoin soaked up market liquidity as it raced higher.
We have since returned to this range of expectations, also known as the normal market zone.
If the opposite happens and we break this expected range to the downside, from our point of view, this will mean that altcoins are the asset to sit on, as they will generate higher returns than Bitcoin. That’s when things will go crazy.
CT: For years, traders have pointed to the changes in the dominance rate between BTC and altcoins as a relevant indicator of when the altcoin season begins. According to the theory, when the price of Bitcoin consolidates or is in a downtrend and its dominance rate falls below a certain percentage, altcoins take advantage of the range of action of Bitcoin to rise. What do you think about this?
BL: Like what I have explained above, it all depends on expectations. As soon as the market creates a change in vision from what is normal, then the “altcoin season” will appear.
Another chart that I frequently rely on is the ETH / BTC pair. When Ether wins relative to BTC, this is generally a good sign for altcoins. And recently, there has been bullish momentum on the chart within its current expectation range.
The ETH / BTC pair is currently forming what we can describe as the Livermore accumulation cylinder.. For over a month, we’ve been discussing this in our free Jarvis Labs Substack newsletter “Espreso”, and what is clear is that the chart is taking shape and is in the last stages of its trend.
If the ETH / BTC pair breaks to the upside and exits this cylinder, it will be another time when expectations of what is normal will be adjusted. This is when we will see rapid price action, and probably an altcoin season.
CT: While it is true that the rising tide lifts all boats, altcoins have been the best performing in the market compared to Bitcoin. A quick look at CoinMarketCap shows that at least 50 have made moves well above 100%, and the market capitalization of altcoins has jumped from $ 250 billion in January to almost $ 900 billion today. In your opinion, what is the main sign that the market is in a proper altcoin race?
BL: In my opinion, this is a bit different than an altcoin season. This is because a proper bull run for altcoins is when investors are more likely to go further down the risk curve compared to simply buying Bitcoin, not necessarily excessive gains compared to Bitcoin.
Based on this definition, We can argue that as long as Bitcoin’s dominance is falling while the crypto as a whole is in a bull market (like today), then this is a bull market for altcoins.
While investors cannot make big gains relative to Bitcoin in an altcoin bull run as they would in an altcoin season, it is prudent to start building exposure to these riskier assets in this environment.
CT: Does on-chain data have any value in determining when altcoin seasons start?
BL: Of course. On-chain data is very valuable if you know how to filter out all the noise that accompanies it. In the case of cryptocurrencies, there is a lot of transparency when viewing on-chain transactions. This creates a large amount of data that can be examined in hundreds of different ways, many of which are meaningless.
At Jarvis Labs, we filter all the data to find what matters. We then run them through algorithms to create trading signals. It is high-value data analysis and tends to be used in place of internal analysts.
That said, on-chain is still an evolving space outside of Bitcoin and Ethereum. We are in half a dozen blockchains watching these signals evolve and generating a variety of reliable signals will allow us to determine exactly when trend changes occur and when altcoin seasons begin and end.
One simple thing that traders can follow to see the progression of an altcoin season is USDT flows.
When an altcoin season rolls around, we are likely to see the flow of USDT in other layer two protocols like Polkadot, Cosmos Y Solarium. This is because many small-cap assets that are very far on the risk curve, which tend to be bought in these types of environments, will exist on decentralized exchanges rather than centralized exchanges.
As investors start buying these small-cap assets, liquidity will follow, and USDT is the most ubiquitous form of liquidity on the market.
So when USDT enters these ecosystems by the hundreds of millions, you can be sure it’s altcoin season, as investors will be chasing these assets that are only found in their protocol’s native DEXs (i.e. Serum).
CT: Is it possible that the narrative is changing and that some altcoins are shedding their dependence on Bitcoin’s performance, changing what an altcoin season can be?
BL: The changing risk landscape is how I see this particular issue.
And as other assets start to grow in market capitalization and age, network effects will grow. This, in turn, will isolate many crypto assets from Bitcoin, as they will be attributed a lot of value.
In this way, Over time altcoins will deviate slightly from BTC’s performance.
Ethereum will be the first asset to do so, simply because of where it is in terms of its life and development cycle. But in terms of being immune to the price of Bitcoin, this will not happen for many years. In fact, I think there will always be some correlation to some degree.
This is due to macroeconomic reasons. Simply put, commodities as a whole tend to correlate with each other, stocks as a whole are correlated, and even currencies tend to move in tandem with each other (i.e. USD, CHF, JPY). Saying this, cryptocurrencies as a whole are likely to move in tandem with each other for at least most of this decade, if not longer.
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