Altcoins: What is the Correlation Between Bitcoin and Altcoin Season?
Alt seasons occur once or twice a year. During alt seasons, alternative cryptocurrencies quickly rise in price against the dollar and Bitcoin. Prices rise for an extended period of time. Such uptrends can last weeks or months, depending on several factors including sentiments towards altcoins.
Bitcoin is King for Altcoin Seasons?
In 2017, altcoins increased significantly over 10 weeks. Gains occurred in May, August, and December. In 2018, alt seasons were short-lived. Many have been left questioning when the next alt-season will take place. The answer to that is pretty complicated.
Bitcoin dominance is one metric used for timing the alt season. It represents the number of people buying and holding Bitcoin. Naturally, the dominance of Bitcoin should increase as more people buy or hold Bitcoin. Conversely, the dominance would fall as more people sell Bitcoin. During times of Bitcoin dominance, more people may be willing to purchase and hold Bitcoin than altcoins. In fact, altcoins may be sold to purchase more Bitcoin. Consequently, the price of altcoins may drop during such periods, while the price of Bitcoin increases.
Some of the strongest performing alt seasons took place when Bitcoin experienced a significant decline in dominance. When Bitcoin dominance decreases, the sale of the cryptocurrency increases. People sell Bitcoin for fiat or altcoins. This suggests that the sharper the decline in Bitcoin dominance, the stronger alt season.
One of the most important dominance levels for Bitcoin dominance and alt season may be 50%. On 19th December, Bitcoin dominance went below 50%, leading to alt season. As Bitcoin dominance continued to decrease, the altcoin markets experienced significant gains.
Other analysts suggest that the alt coin season can take place when Bitcoin trades sideways. Stability in Bitcoin prices can instill confidence in altcoin markets. Since the start of 2019, over 20 individual altcoins doubled in value while some altcoins increased by 8x during the first quarter. The ALT100 made 14.2% gains in the first quarter of the year, which is 2.5% above Bitcoin’s performance. Such coins included Enjoin Coin (ENJ), Binance Coin (BNB), Tezos (XTZ), Ontology (ONT), and Basic Attention Token (BAT).
Analyst, Nik Patel suggests that less capital is required to move prices of alt coins. This may be the reason that alt coins experienced significant gains against Bitcoin. He points out that alt coins fell by 90% against Bitcoin since January 2018. The fall in price and liquidity in alt coins with smaller market capitalization may have made it easier for gains against Bitcoin in 2019. Patel recommends caution in the 2019 bull run. More attention may need to be focused on alt coin prices against bitcoin prices rather than altcoin prices against USD.
Divestments into Altcoins
Over the past week, investors have started divesting into relatively cheap alternative cryptocurrencies. Major alt coins like Stellar, XRP, and Ethereum experienced significant gains. Lesser-known altcoins also experienced gains. The total market capitalization for alt coins rose to $95.65 billion, an amount last seen in November 2018.
As liquidity increases over time, alt coins should extend beyond Bitcoin. Alt coins may become more mainstream, giving rise to more unique valuation metrics.