Altcoin Surge Indicates Potential Bull Market
A significant rise in the performance of altcoins suggests that we may be entering a new bull market, with 89 of the top 100 cryptocurrencies outpacing Bitcoin. This trend is reminiscent of the explosive rally witnessed in 2021. If you’ve been monitoring the market, it’s evident that altcoins are experiencing remarkable growth. In the past week, XRP surged past $2.50, Hedera (HBAR) appreciated by over 100%, Ethereum (ETH) reached its highest value in nearly six months, and Chainlink (LINK) saw a price not observed since January 2022. Additionally, numerous smaller market cap tokens have broken through previous resistance levels, achieving their all-time highs.
The total market capitalization for altcoins has now climbed to $1.369 billion, a substantial increase from $784.7 million just 30 days ago, representing a growth of 74.5%. This surge can largely be attributed to the unexpected resurgence of well-known “dino coins,” or established cryptocurrencies that have been around for several years but have only recently gained traction. Examples of these include XRP, Stellar (XLM), and Cardano (ADA).
Signs of an Altcoin Bull Market
Recent data suggests that we might be on the brink of a full-blown altcoin bull market. The CMC Altcoin Season Index recently reached its highest level this year, scoring 89 out of 100. This indicates that a significant majority of the top 100 cryptocurrencies, based on market capitalization, have outperformed Bitcoin over the past 90 days. A score above 75 signifies an altcoin season, while a score of 25 or below indicates a Bitcoin season. Currently, with a score of 78, we are entering altcoin season, and if this number continues to rise, it will further confirm that altcoins are likely to continue outperforming Bitcoin.
The last major altcoin season occurred in the first half of 2021, during which the top 100 altcoins achieved a staggering 174% gain, in stark contrast to Bitcoin’s mere 2% increase. As a result, Bitcoin’s market dominance plummeted from 61.9% at the beginning of February 2021 to as low as 40% by mid-May of the same year. Many altcoins reached their peak values during this period, including BNB, Dogecoin (DOGE), XRP, and Chainlink (LINK). The previous cycle saw altcoins outperforming Bitcoin consistently for nearly five months, although gains were not evenly spread across all altcoins.
The growth was particularly pronounced in sectors that were trending at the time. For instance, the Decentralized Finance (DeFi) sector, which includes decentralized exchanges and yield farming, saw significant gains, with projects like Uniswap (UNI) and Compound (COMP) leading the charge. Additionally, alternative smart contract platforms, or “Ethereum killers,” such as Avalanche (AVAX) and Solana (SOL), also garnered impressive valuations. The Play-to-Earn (P2E) narrative, featuring blockchain-based gaming incentives, witnessed substantial growth with standout projects like Axie Infinity (AXIE).
Current Market Dynamics and Future Outlook
At present, Bitcoin’s market dominance is at 54.8%, while altcoins are generally experiencing widespread gains. The current market conditions bear a striking resemblance to those observed in early 2021. If history is any indication, we could see Bitcoin’s market share decrease to around 40% as altcoins gradually capture a larger portion of the market in the weeks and months to come.
This leads to the pressing question: How should investors prepare for the next phase of the market? The well-known adage, “History never repeats itself, but it often rhymes,” holds true in this context. Learning from previous market cycles can provide valuable insights into potential future trends. It’s advisable to monitor the CMC Altcoin Season Index closely; as the score approaches 100, it may be wise to shift focus towards altcoins. Conversely, if the score starts to drop closer to zero, Bitcoin may become the more attractive option.
Moreover, now is a crucial time to develop a clear investment thesis regarding which narratives and sectors will likely drive significant growth. Some of the most promising narratives emerging recently include Real World Asset (RWA) tokens, Artificial Intelligence & Big Data tokens, meme coins, modular blockchain tokens, data availability layer tokens, and Layer 1 tokens. Once you have your thesis established, strategically diversifying your portfolio across these promising assets is essential.
It’s critical to set both entry and exit strategies for your investments. While it may feel exhilarating to hold onto a token as its value skyrockets, it’s crucial to avoid the pitfall of “roundtripping” your investment—holding onto it as it plummets back to or below your initial entry point. Historically, altcoin seasons have typically lasted only a few months, although top-performing assets may continue to thrive well beyond that timeframe. A commonly recommended strategy is to “let your winners run,” which involves holding onto your best-performing assets rather than cashing out too early.
