What is Alt Season? - Reading time: about 2 minutes
Altcoins, also referred to simply as alts, are essentially any token not named Bitcoin, although Ethereum may have a case for shedding the label. Alts provide a huge amount of versatility for investors looking to diversify their portfolios with high-performing sectors such as NFT, metaverse, and DeFi.
Crypto traders can turn to portfolio diversification as a risk management strategy by pouring capital across the many emerging, and promising growth opportunities, in the crypto space, i.e. alts.
2017 ICO craze
As the “alt” suggests, alternate coins can simply be thought of as alternate investments outside of Bitcoin, a trend that caught fire during a 2017 phenomenon led by the explosion of ICO projects that led to the first instance of what is now simply referred to as an “alt season.”
During this time, alts massively outperformed Bitcoin as evidenced by Ripple finishing out 2017 as the top gainer with a huge 36,000% gain while Bitcoin closed out the year with a “mere” 1,000%. During this time, Ripple in particular caught fire, backed by major financial institutions as it continued to accelerate its adoption alongside a healthy amount of FOMO.
This also marked a shift in investing from riskier ICO to viable blockchain ventures, with Ripple skyrocketing to the top thanks to a strong product-market as a digital remittance solution.
As the overall crypto market continually undergoes stages, or market cycles, alt season is a particular cycle, or seasonal trend, where Bitcoin starts to wane in dominance, leading to several opportunities highlighted by increasing numbers of traders flocking to the alt scene, particularly large cap tokens.
When Alt Season?
There is no tell-tale sign of recognizing the onset of another alt season but several metrics could suggest its onset.
One commonly used chart is the altcoin season index which triggers an official altcoin season once the top 75% of the market’s top 50 tokens consistently exceed the performance of Bitcoin during a 3-month span.
As alts begin to dominate the headlines and conversations, BTC dominance inevitably begins to drop as traders make the seasonal migration to large cap tokens. Some analysts peg the onset of Alt Season when BTC dominance dips below 60%.
How to invest in Alts
While regulations and transparency have improved since the ICO craze of 2017, it is essential for every investor to approach alt hunting with risk management measures in place. This is even more relevant in growing sectors such as DeFi, where the risk of rug pulls are present around every corner.
Discovering a potential low-cap gem can be a highly rewarding adventure when approached with a high degree of financial responsibility and proper due diligence, for tips on how to DYOR you can refer to this article.