What is altcoin season? 

Every year, as Bitcoin steadies, a new frenzy emerges: altcoin season—a time when lesser-known cryptocurrencies make headlines for their meteoric rises.

The crypto market is famously unpredictable, with prices often soaring or plummeting in response to shifting trends and events. While Bitcoin commands the spotlight, it's just one piece of a much larger and rapidly evolving ecosystem.

Altcoins: Everything besides Bitcoin

In the crypto world, every other coin and token besides Bitcoin is called an altcoin. Namecoin, the first ever altcoin, was launched two years after Bitcoin's revolutionary entry. Now, the crypto space is filled with tens of thousands of them. 

These alternatives to Bitcoin were developed to tackle some of the challenges associated with the original cryptocurrency. Altcoins are like spin-offs of Bitcoin, each with their own twist and purpose, designed to tackle specific challenges or offer new possibilities

The coins also differ from Bitcoin in terms of their higher risk and relative youth. Though Bitcoin remains a market leader, altcoins offer great opportunities for growth and innovation—though this comes with greater volatility as well. 

Altcoin season

In the crypto world, there is a period—known as altcoin season or altseason—when the prices of altcoins outperform Bitcoin. For traders, altseason presents unique opportunities for diversifying portfolios and potentially seeing higher gains. 

Altseason typically occurs during a bullish crypto market, a phase when prices generally rise due to strong demand and positive sentiment. Conversely, a bearish market is characterized by falling prices and a lack of confidence among traders. These terms are commonly used in financial markets to describe overall trends.

One hallmark of altseason is a decrease in interest in Bitcoin as its price steadies after a surge. Traders may sell their BTC holdings and turn to altcoins for further potential returns.

Bullish sentiment often fuels the popularity of altcoins. During bull markets, traders exhibit a growing appetite for higher returns and risk, driving up altcoin demand. This rise tends to increase the market cap of altcoins, which reflects their size and influence.

Moreover, new altcoin launches or updates often fuel demand and hype. This is especially the case if these tokens are linked to broader trends and provide unique solutions and features that set them apart from other cryptocurrencies. 

In 2020, DeFi, or decentralized finance (a growing system of peer-to-peer financial services that run on the blockchain), drove altseason, as reported by Crypto.com.

Another took place in 2021, thanks to the surge of non-fungible tokens (NFTs), which are tokens used to represent ownership over certain physical or digital assets.

Early 2022 also saw an altcoin season with the rise of web3, referring to the new blockchain-based iteration of the internet. 

Other common altseason indicators include rapid price increases, higher altcoin dominance, and FOMO (fear of missing out). 

Altcoin Season Index

A more objective gauge of altseason is the Altcoin Season index, which monitors the market performance of the top 100 crypto assets—excluding wrapped tokens (coins that represent another cryptocurrency's value on a different blockchain) and stablecoins (cryptocurrencies pegged to real fiat money)—against Bitcoin in the last 90 days. 

Based on this index, the market is in Bitcoin season if 25% or fewer altcoins outperform BTC. In contrast, altseason is marked by an index score of 75, when at least 75% of these altcoins outperform Bitcoin, marked by an index score of 75. 

The index is updated everyday, offering a score that ranges from 1 to 100. At the time of writing, the index has a score of 61 on Blockchain Center, suggesting that altseason has yet to fully arrive.

What to do during altseason 

As mentioned earlier, altseason is often perceived as an opportunity for traders to diversify their portfolios. However, the importance of DYOR—or “do your own research"—cannot be stressed enough. Traders should analyze the technical and fundamental aspects of tokens in order to decide on which altcoin to invest in. 

That said, it is equally important to acknowledge investment risks. With their prices swinging dramatically, altcoins are known to be incredibly volatile. Though this volatility could potentially translate to hefty gains, it also exposes traders to grave losses. Effective risk management strategies, such as dollar-cost averaging (investing fixed amounts regularly) or stop-loss orders (instructions to sell an asset when it hits the price of maximum tolerable loss), are important. 

Some tokens may also be pump and dump schemes, which involve the artificial inflation of token price before the asset is sold off, leaving unsuspecting traders at a grave loss. Investors should also beware of FOMO, which may tempt them to buy a token with an overvalued price. 

While there are promising opportunities during altcoin season, successful trading in this period does not happen magically or accidentally. It requires caution, strategy, and diligent research. For seasoned and new investors, staying mindful and informed will be invaluable as they navigate through this dynamic market during altseason.