In 2017, the first ever altseason occurred, when Ethereum and other coins showed a greater increase in capitalization than bitcoin. At that moment, many thought that digital gold would give way to a leading position, giving way to young projects.
These expectations were not fulfilled, but in the following years there was a certain cyclical pattern in the market. Based on the charts of recent years, analysts are waiting for a new growth of altcoins. Oleg Cash Coin explains why these forecasts are most likely not to come true.
A bit of history
The success of the first cryptocurrency attracted the attention of enthusiasts of different views, promoting their principles and ideas to the masses. Bitcoin has opened the way for a number of technological and social experiments to create and develop distributed networks.
Bitcoin as a market-forming protocol was the first project to offer a balanced solution to the blockchain trilemma: decentralization, security, performance.
But it turned out that not all users care about balance. This led to the formation of two opposing camps: bitcoin enthusiasts and supporters of alternative coins. The developers of the latter mainly focused on performance, sacrificing security or decentralization.
Aggressive marketing with phrases like "bitcoin killer" was often used in the promotion of projects. However, the scale of adoption of digital gold and its market valuation turned out to be beyond the reach of all altcoins.
The struggle between the two directions can be seen on the historical chart of the dominance of digital gold. It shows the share of BTC, other coins and tokens as a percentage of the entire capitalization of the crypto market.
Data: CoinMarketCap.In 2016, the share of bitcoin began to decline. This was due to a number of hard forks, including Bitcoin Cash, the launch of the Ethereum blockchain, the ICO boom and the adoption of the ERC-20 standard.
Then, for the first time, the concept of a season appeared, when alternative coins and tokens to bitcoin show greater growth than the first cryptocurrency. In 2017, the Blockchain Center company launched an analytical tool, the altseason index. It tracks the growth of the relevant assets relative to BTC.
Data: Blockchain Center.If 75% of the assets from the list of the top 50 by capitalization have performed better than bitcoin over a period of 90 days, this is the season of altcoins. The index does not include "stable coins" (USDT, DAI, USDC) and wrapped tokens (WBTC, stETH).
Another tool for determining the altseason is the dominance of volumes in the futures market. The chart option is provided by the Coinalyze service. If the share of altcoins exceeds 35%, this indicates the willingness of traders to take risks. This, in turn, indicates a flow of liquidity to the market of alternative coins and tokens.
Data: Coinalyze.Prerequisites for the altseason
In 2017, the altseason was accompanied by a narrative about the shift of bitcoin from the first place in the list by capitalization. But in the future, it was only about the percentage of dominance and the flow of capital from sector to sector.
The main reason for the growth of the altcoin segment is the effect of total market wealth. This becomes possible when investors who have earned money on large projects transfer part of their capital into new coins and tokens.
For example, the success of Ethereum and the huge revenues of miners caused a powerful influx of finance into the ecosystem. And the growth of Solana has led to the development of projects within the platform.
Capital flows between sectors are also possible outside ecosystems. Many market participants who have received windfalls, for example, on the growth of meme coins, also invest in NFT, GameFi, and AI tokens.
It should be noted that such assets are much more volatile and less "stress-resistant". Therefore, the altseason is the time of FOMO.
What does the altseason look like?
Many are still waiting for the onset of the altseason, focusing on the growth waves of the crypto market of the past years. However, optimists do not take into account an important factor: there are much more coins than in previous cycles.
According to the most conservative estimates, in comparison with the first altseason of 2017-2018, the number of cryptocurrencies increased seven to eight times.
And if we take into account tokens that are not tracked by the monitoring services CoinGecko and CoinMarketCap, their number will exceed several million. In May 2024 alone, 455,000 tokens were issued in the Solana blockchain, 177,000 in the Base, and 39,000 in the BNB Chain. About 20,000 more were created during the same period in the main Ethereum network, as well as in the L2 solutions of Arbitrum and Optimism.
Such a scale simply will not allow the entire market or any significant part of it to grow. As a confirmation, it is possible to trace how individual categories and trends developed in the past years, and not altcoins as a whole.
For example, the memcoin market has actually grown from a single Dogecoin coin to an entire sector with a capitalization of ~$50 billion, with almost 900 positions on the CoinGecko list.
This also includes the trend of artificial intelligence, which allowed the head of OpenAI, Sam Altman, to promote Worldcoin in parallel.
The fractalization of the market is growing at a tremendous pace, in some places reaching inadequate sizes. At the beginning of July 2024, CoinGecko distinguishes 354 separate categories, the number of which is likely to grow further. However, not all narratives are becoming popular. Data for 2023 showed that more than 50% of traffic has five directions: AI, GameFi, memecoins, the Solana ecosystem and RWA.
Some of the categories remained popular in 2024. According to BiteyeCN analysts, memes have become the most successful market, with growth of over 1,800%. The RWA segment also significantly outperformed the yields of BTC and ETH — the sector's indicator exceeded 213%.
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Thus, the market capacity relative to growth opportunities becomes limited for a large number of tokens and coins at the same time. Noticeable rates of capitalization increase in general are provided by large coins: bitcoin, ETH and several others.
Therefore, the onset of the classic altseason should not be expected at all — as well as the growth of entire categories of projects. Probably, instead, we see the formation of a huge number of index narratives.
For example, the growth of the American market is usually measured by the value of the S&P 500 index, where only seven companies (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla) out of 500 represented in the list form a share of about 30%.
This means that the altseason in the future may represent a local short-term growth of trends and blue chips in some separate categories, when some market participants will receive windfalls, while the portfolios of others will remain unchanged or even fixing losses.