Are we there yet? Here’s why one analyst says its not ‘altcoin season’
Few traders would dispute that bitcoin (BTC) is in a bull market, but there is less agreement that the market is in the midst of an altcoin season. A quick look at crypto Twitter shows a split between traders who think we’re halfway through the start of alt season and those who think it hasn’t started yet.
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In general, traders rely on a wide range of indicators and metrics, such as the total market capitalization of bitcoins versus the total market capitalization of altcoins, the prevailing bitcoin price, and whether or not small-capkids have increased by a certain percentage.
As is the nature of investing, too many signals can sometimes produce mixed results. So Cointelegraph decided to talk to Ben Lilly, co-founder and analyst at Jarvis Labs, to find out what he and his company currently think about the market and what the best metrics are to determine if algorithm season has really arrived.
Montelegraaf: A number of analysts say we are in a far-right season, or at least on the brink of one. Some look at the support/resistance reversals and fractals on the altcoin market cap charts (isolated from the BTC market cap) to make a compelling argument. Why do you think we’re not on the cusp of an alternative action season?
Ben Lilly: I guess everyone has their own interpretation of what an alternative stock season is. For many, this could be a season for alternative states if BTC and alternative states move higher. He opposes the rise of Bitcoin while altcoins remain stable or decline.
I think that’s a fair look at the alternative stock market season, but it’s not necessarily one I subscribe to. Simply because if this is the definition of altcoins season, it’s not a compelling reason for me to switch from bitcoin to altcoins given the risk.
Because in this definition of altcoins season, bitcoin remains the preferred asset to own.
We see the Altstein season as a market move that surprises people, or at least forces traders to rethink the normal.
CT: So don’t the altcoin seasons reflect a macro-level trend change in the direction bitcoin is going in the market?
BL: Now, going back to what I said earlier, support and resistance are useful explanatory approaches. We can think of them as zones that generate rapid price action when crossed. This is the kind of action you want to take, assuming you’re on the right page. On the other hand, anything between these supports and resistances can almost be considered expected or normal – in a broad sense.
To see where this range lies, we can look at the bitcoin dominance chart. This allows us to know what percentage of the market bitcoin represents. Trading is now within a range, which is the expected range. And if it tends to fall, that’s good for altcoins, because bitcoin cedes some of its dominance to other coins.
Many point to this fact and say it is the season for alternative stocks, but I would point out that this type of activity tends to occur in a bull cycle because new money is coming in.
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In fact, we’ve been trading in this expectation range since mid-2019, which coincides with the time bitcoin bottomed and began to rally.
Oddly enough, we recently broke out of that range in late 2020, and when we did, bitcoin went through the roof. During this period altcoins lost their value. And just as Brent Johnson describes his dollar milkshake theory, bitcoin has sucked liquidity out of the market as it has grown.
Meanwhile, we have returned to this range of expectations, which is also known as the normal market range.
If the reverse happens and we break this expected range downwards, we believe this means that altcoins are the asset of choice as they will deliver above average returns compared to bitcoin. Then it gets wild.
CT: For years, traders have considered the change in dominance between BTC and altcoins a relevant indicator for the start of the altcoin season. The theory is that when the price of bitcoin consolidates or is in a downtrend and the prevailing price drops below a certain percentage, altcoins benefit from bitcoin’s range action by strengthening the recovery. What do you think?
BL: Like I said before, it’s all about expectations. Once the market creates changes toward normality, there will be an alt-stock season.
Another chart I often rely on is the ETH/BTC pair. When Ether wins over BTC, it’s usually a good sign for altcoins. And the chart has been experiencing bullish momentum lately, which is in line with current expectations.
The ETH/BTC pair is currently forming what can be described as a Livermore accumulation cylinder. We’ve been talking about it for over a month in the free Jarvis Labs Substack Espresso newsletter, and it’s clear that the timeline is starting to take shape and is in the final stages of development.
If ETH/BTC breaks upwards and breaks out of this cylinder, it will be another time when expectations are adjusted to what is normal. At this point we will see a rapid price movement and most likely an alternative stock market season. Weekly chart ofETH/BTC. Source: TradingView, Jarvis Labs
CT: If the tide lifts all boats, altcoins are the best on the market compared to bitcoin. A quick look at CoinMarketCap shows that at least 50 people have made moves well above 100%, and the altcoin market cap has climbed from $250 billion in January to nearly $900 billion today. What do you think is the most important signal that the market is in good shape?
BL: I think it’s a little different than the old stock season. A real bull run for altcoins, where investors are more willing to move further down the risk curve of cryptocurrencies rather than just buying bitcoin, does not necessarily mean inflated returns compared to bitcoin.
Based on this definition, we can conclude that if bitcoin’s dominance is declining while crypto as a whole is in a bull market (as it is now), it is a bull market for Allcocks.
While investors enjoying a true bitcoin bull market have not performed as well as they did during the altcoin season, it would be wise to increase exposure to these riskier assets in this environment.
CT: Do the network’s dates matter when determining the start of the old season?
BL: Absolutely. The on-chain is very valuable if you know how to filter out all the noise associated with it. With crypto, there is so much transparency when you look at the transactions in the chain. The result is a wealth of data that can be accessed in hundreds of different ways, many of which are meaningless.
At Jarvis Labs, we filter all the data to find the right one. Then we run them through algorithms to generate trading signals. These are high-level data analyses that are typically used in place of internal analysts.
In this regard, on-chain is still an emerging space outside of Bitcoin and Ethereum. We’re sitting on half a dozen blockchains and we’re watching how these signals evolve. Generating a variety of reliable signals will allow us to determine exactly when trend changes occur and when the alternative stock season begins and ends.
One simple thing that traders can track to see how the altcoin season is going is the USDT flow.
As alt-state season approaches, we will likely see USDT spread to other Tier 2 protocols such as Polkadot, Cosmos, and Solana. This is because many small-cap assets, which are very low on the risk curve and more likely to be bought in such an environment, are more likely to exist in decentralized rather than centralized markets.
Once investors start buying these small-cap assets, liquidity will come, and USDT is the most common form of liquidity in the market.
So when USDT enters these ecosystems with hundreds of millions, you can be sure it will be altcoin season as investors will hunt for these assets that can only be found on DEX and are peculiar to their protocol (i.e. whey).
CT: Is it possible that the narrative is changing, and that some altcoins are moving away from reliance on bitcoin execution, which would change the face of the altcoin season?
BL: The changing risk landscape is my take on this particular issue.
And as other assets increase in market capitalization and age, network effects will increase. In turn, this will isolate many of bitcoin’s crypto assets as more value is placed on them.
As a result, altcoins will slightly deviate from BTC’s performance over time.
Ethereum will be the first asset to do so, simply because it is already there in terms of lifecycle and evolution. But in terms of bitcoin’s price insensitivity, that’s not going to happen in the next few years. In fact, I think there will always be a correlation to some degree.
There are macro reasons for this. It’s simple: Commodities generally tend to correlate with each other, stocks generally tend to correlate with each other, and even currencies tend to move with each other (i.e. USD, CHF, JPY). Speaking of which, crypto as a whole will likely move in tandem for at least most of this decade, if not longer.
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