Alt winds of change? What an altcoin season would mean for crypto

A new alternative season has arrived – at least according to some crypto industry commentators. In the last month, altcoins – aka cryptocurrencies other than Bitcoin (BTC) – have surged in price, with projects like Solana, Cardano, and Polkadot seeing their tokens triple times value. However, even though people are shouting “alternative seasons” with a familiar atmosphere, the industry is still exploring a lot of uncharted territory.

Cointelegraph Markets Pro’s Alternate Seasons Indicator indicates that the industry is in the middle of the alt season, showing a 32% skew. While the Altseason Index, which defines alt season as a 90-day period in which 75% of the top 50 altcoins outperform Bitcoin, says it is not an alt season yet. But if the last few weeks are anything to go by, the altcoin market is just getting started and it has proven its desire to make an impression.

One theory behind why an alternative season is imminent is that the overall sentiment around Bitcoin has reached a solid footing. Bitcoin inflows are funding more altcoin projects, leading to newly launched tokens reporting impressive growth. However, could the story be much more than that?

On alt season?

Alternate seasons can be both good and bad for the crypto economy, being a sort of necessity in the space. On the other hand, they are a sign of health, indicating the inflow of new money into the market and causing valuations to spike. However, after a while, speculation tends to outpace the utility of these tokens, causing steep market corrections and enormous losses for speculators.

Over the past few years, the crypto and digital asset space has grown tremendously, but according to Hunain Naseer, senior analyst at OKEx Insights, not much is new in the meantime. “We are seeing Ethereum break out against BTC and begin to outperform the market leader. The same has happened in previous alternate seasons,” he said, adding, “ETH is leading a market-wide rally and as long as it remains strong, this trend could continue until end of the year.

According to Naseer, the recent altcoin rally is being driven by a multitude of factors, including the recent explosion of unavailability tokens (especially in August), which has reaffirmed confidence. of the market into the speculative value of digital assets. The recent positive news has also stoked renewed optimism for the market, with the announcements of the London hard fork of Ethereum, the launch of smart contracts on Cardano, and cross-chain bridges on the blockchain. Cosmos.

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The shift away from more traditional “blue chip” investments into the space like Bitcoin and Ethereum may also reflect the current risk-on sentiment of the market, meaning investors are increasing their likelihood accept risks due to a better market outlook. Altcoins are naturally more volatile than Bitcoin due to their smaller market capitalization and lower liquidity, but while this means they can quickly render investments worthless, they also have potential potential for large profits.

The market capitalization of stablecoins grew from $36 billion in January to over $115 billion in mid-September, with the supply of Tether (USDT) tripling during the period. Stablecoins, while not exactly altcoins, have become the primary means of value transfer on blockchain networks, and this expansion is a fitting representation of the growing influence of decentralized finance (DeFi). for space.

A well-diversified portfolio can protect investors from risk while ensuring they engage in some sort of pooling activity. This makes altcoins generally quite attractive as an investment, but all this money has to come from somewhere. With inflows into altcoins on the rise, a massive BTC sell-off could occur in the tokens, but institutions appear to be more bullish on Bitcoin than ever before.

According to Rachel Lin, co-founder and CEO of decentralized derivatives exchange SynFutures, Bitcoin is not going to crash — it just lags in performance: “I expect the crypto market as a whole to continue. continue in an uptrend for the next few months, especially with the remaining dovishness of the Fed and new funds and institutional investors entering the market. “

Not Bitcoin or altcoins

A key difference between previous alternate seasons and this one is how dominant Ether (ETH) has become. Bitcoin accounted for nearly 70% of the crypto market cap at the start of the year, while Ether accounted for less than 13%. As of Thursday, Ether represents nearly 19% of the market, while Bitcoin dominance has dipped below 41%.

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DeFi has attracted more institutional investors to the space than anything before, and this is slowly bringing legitimacy and awareness to the space. “Even if there are many competitors in the space and its network congestion, Ethereum will continue to grow,” said Michael Tzezailidis, public relations director for Telos – a Web 3.0 blockchain platform. .

Many DeFi projects run on the Ethereum network, and while the competition is on, it doesn’t look like it’s going to die any time soon. The altcoin market has grown from $220 billion to $1.35 trillion this year alone — a roughly 600% increase in just nine months — with Ethereum playing a major role. Some don’t even consider ETH as an altcoin anymore, and this begs the question: Do other altcoins eventually drop their labels when they grow above a certain threshold?

For a long time, Bitcoin’s main value proposition has been its utility as a store of value and its deflationary supply, but although BTC is bound to continue to receive attention from investors As an investment, the lower market capitalization of altcoins will result in larger short-term returns. Furthermore, it is more likely that institutional capital will find its way to alt-coins with a smaller total market cap during an alt-season.

Ultimately, Ethereum’s move to proof-of-stake (PoS) and protocol updates to reduce its supply could make ETH a real contender for the top spot. Investors may be betting on a softer inflation curve for ETH and a stronger ecosystem, making it a benchmark asset for other altcoins to follow or compete with.

‘Is it season?

As people across the globe continue to learn about cryptocurrencies and their ability to solve global problems like remittances and monetary efficiency, more and more capital is entering the digital asset space. “It’s all about education,” said Cabital CEO and co-founder Raymond Hsu. In recent years, digital assets have broken new ground, and with the smell of an alternate season in the air, blockchain could be a more focused global approach to how it can solve better real-world problems.

According to Hsu, institutional investors will do what most retail investors do when initially exploring the crypto world: buy Bitcoin and then switch to Ether. He say:

“Once they feel comfortable, they’ll start looking at other projects that are tackling more complex challenges.”

Traditional financial institutions that opposed the concept of cryptocurrencies a year ago are now setting up trading desks and providing customers with greater exposure to the digital asset space through all financial instruments. Terms like “Bitcoin” and “blockchain” are slowly becoming household names, and growing adoption could mean this alternative season could make more of a lasting impact.

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While DeFi appears to be thriving primarily on Ethereum, competing projects are setting the stage for a shared, interoperable decentralized framework for the financial applications blockchain will evolve into. While it may take some time for them to start hosting more decentralized applications like Ethereum or even achieve a comparable level of composability, the competition almost always benefits the people. consumption. In decentralized systems, everyone is a consumer, and more pressure from competition could accelerate the already rapid growth of the space.

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Altcoins have grown tremendously over the past two years, and as these projects continue to serve the needs of the blockchain space, either by solving unsolved problems or improving existing solutions, this trend will probably maintain its orbit.

The jury is still out on whether an alternate season is coming to an end, but a quick look at the markets reveals stark similarities to past appearances and to the sheer amount of positive news and releases. Innovation projects are launched regularly, this season may even last a little longer than expected.