Since early 2023, Bitcoin has been in its fourth upward cycle, following the bear market that ended the previous cycle in 2022. Since then, the cryptocurrency has achieved several milestones, including the approval of US ETFs in January, and continues to lead the broader crypto sector in this bull market. After surpassing its previous all-time high and approaching the $100,000 mark, Bitcoin is now entering a crucial phase where the rest of the crypto market is starting to show its potential.
Understanding the Altcoin Season
The classic capital rotation in a crypto cycle typically follows a predictable pattern. Bitcoin, as the industry leader, initiates the rally. Altcoins often follow Bitcoin's momentum but rarely outperform it over the long term. During bear markets, altcoins usually experience more severe corrections. However, there is a brief period in each cycle when altcoins significantly outperform Bitcoin.
This phase tends to occur when Bitcoin is trading above its previous all-time high and enters consolidation periods. As Bitcoin pauses during its upward trajectory—as it has over the past two weeks—altcoins have the opportunity to catch up and even outperform. The final phase of altcoin outperformance has historically taken place after Bitcoin has already reached its cycle peak. During corrections in Bitcoin's price, capital often rotates out of Bitcoin and into riskier but potentially more rewarding altcoins.
Comparing current price patterns with past market dynamics suggests that we are once again entering this phase of the crypto bull run. Altcoins are broadly posting significant gains, while Bitcoin is consolidating just below the $100,000 target, preparing for its next move.
Indicators of an Altcoin Season
Several key indicators help confirm the start of an altcoin season. Market sentiment is one of them. The Crypto Fear and Greed Index, which measures metrics such as social media activity and trading volumes, recently reached a value above 90. The last time the index reached such heights was during the 2021 bull run.
Google Trends data also provides clear signals. While searches for "Bitcoin" have declined after the US election, queries for terms like "altcoins," "crypto," and specific coins like "XRP" are surging.
The Altcoin Season Index, offered by blockchaincenter.net, is another reliable metric. This index tracks the performance of the top 50 altcoins by market capitalization over a 90-day period. When more than 75% of these coins outperform Bitcoin, it signals the start of an altcoin season.
Bitcoin dominance—the share of Bitcoin in the total crypto market capitalization—is another critical indicator. At the beginning of each bull market, Bitcoin dominance tends to rise significantly, as it did from early 2023 when it climbed from around 39% to over 60%. However, in the last two weeks, this upward trend has clearly broken, indicating the start of altcoin outperformance.
The market capitalization of the crypto sector excluding Bitcoin and Ethereum, often referred to as TOTAL3, also shows promising chart patterns. A long-term cup and handle formation has played out successfully in recent months, and the sector is now poised to break above its previous cycle high and enter a price discovery phase.
What to Expect Next
Bitcoin is likely to continue leading the market, with the rest of the sector following closely behind during Bitcoin's consolidation phases. A significant outperformance by altcoins is expected once Bitcoin approaches or reaches its cycle peak, wherever that may be. Market sentiment will play a crucial role, as investors seeking higher returns move further along the risk spectrum.
The duration of this phase will depend largely on macroeconomic conditions. The global liquidity cycle remains the most important factor for Bitcoin and, by extension, the broader crypto market. There is likely room for this cycle to continue well into 2025, as both the US and China—key players in global liquidity—may be forced to expand their money supply to address debt and real estate crises. Additionally, the new crypto-friendly US administration is expected to provide further momentum early next year.
Strategies for Investors
This crypto bull run likely still has room to grow, especially for altcoins. However, the inherent volatility and high risk of the sector cannot be overlooked. Most altcoins will experience explosive movements, making it challenging for investors to capture gains consistently. Without a deep understanding of market dynamics, attempting to profit from these movements may resemble gambling more than investing.
Tax considerations are also becoming increasingly important for altcoin investors. The opportunity to position oneself favorably while considering the one-year holding period for tax-free gains has likely passed, as it is improbable that this cycle will extend significantly beyond 12 months. While the market still holds potential, new investments may not benefit from tax exemptions, a critical factor to consider when devising an altcoin strategy.
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Frequently Asked Questions
What is an altcoin season?
An altcoin season is a period in the crypto market when a majority of altcoins outperform Bitcoin. This typically occurs during the later stages of a bull market when investors rotate capital from Bitcoin into higher-risk, higher-reward altcoins.
How can I identify the start of an altcoin season?
Key indicators include a surge in the Crypto Fear and Greed Index, increased Google search trends for altcoins, a decline in Bitcoin dominance, and the Altcoin Season Index rising above 75%.
Is it too late to invest in altcoins?
While the cycle may be in its later stages, opportunities still exist. However, investors should be cautious due to high volatility and tax implications. It is essential to conduct thorough research and consider long-term strategies.
What role does Bitcoin play in an altcoin season?
Bitcoin often leads the market rally, with altcoins following during its consolidation phases. Bitcoin's movement sets the tone for the broader crypto market, making it a critical indicator for altcoin performance.
How should I approach taxes when investing in altcoins?
Tax regulations vary by jurisdiction, but gains from altcoin investments are typically subject to capital gains tax. In some regions, holding assets for over a year may qualify for tax exemptions. Always consult a tax professional for personalized advice.
What is the best strategy for investing in altcoins during a bull run?
Diversification, risk management, and a long-term perspective are key. Avoid chasing short-term gains and focus on projects with strong fundamentals. 👉 Learn more about building a balanced portfolio