Bitcoin Struggles Delay New Altcoin Season: Investor Caution Advised
The Essentials in Brief
The 2021 altcoin season extended from March to June, and a new season has not yet begun. Bitcoin is currently struggling for an upward trend, dampening hopes for an imminent altcoin season. Market dynamics and a lack of capital inflows suggest that investors should be cautious before investing in altcoins.
Understanding the Altcoin Season Index
The Altcoin Season Index is a tool that tries to measure market sentiment and whether Bitcoin or the altcoin sector is performing better. An altcoin season is assumed when 75% of the top 50 altcoins outperform Bitcoin in a 90-day window. However, current data shows that we are far from such a scenario. This is because the market lacks the necessary capital inflows and the speculative interest that drives an altcoin season.
The Role of Bitcoin
Traditionally, a major upward trend in Bitcoin leads investors to shift some of their money into altcoins, hoping for above-average gains in assets that are riskier than Bitcoin. However, before an altcoin season can begin, Bitcoin must record significant gains, as was the case from October 2023 to January 2024.
Long-term Implications and Challenges
Analysis of the Bitcoin dominance chart shows that a sharp drop in BTC.D is a key catalyst for altcoin seasons, as it highlights the growth of the altcoin sector compared to Bitcoin. However, since March, the altcoin market has been in a bear market. The dilution of the altcoin pool and the constant token releases from existing projects mean that demand must increase significantly to keep up with the growing altcoin market. This could concentrate extraordinary gains in this cycle on fewer altcoins than in 2021 or 2017, and returns could also be lower as participants are no longer early.
Our Assessment
The current market situation and the Altcoin Season Index suggest that investors should be patient and make their investments in altcoins carefully. Dependence on Bitcoin’s performance and the lack of significant capital inflows into the altcoin market make an imminent altcoin season unlikely. Investors should rely on informed analyses and careful selection of their altcoin investments, rather than hoping for a broad market recovery.
Sources: Blockchain Centre, TradingView, AMBCrypto
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