Understanding the altcoin season index: predicting trends and maximizing returns

Over time, historical market cycles have shown a fascinating trend: as Bitcoin's price stabilizes, investor capital often shifts towards more volatile altcoins, where higher risks can translate into greater profits.

This phenomenon is called the 'altcoin season', a period characterized by explosive altcoins growth. In this article, we will examine the altcoin season index and identify critical market indicators that signal the start of this dynamic phase.

Analyzing the altcoin season index

The Altcoin Index is a technical indicator that allows you to evaluate the dynamics of the altcoin market compared to bitcoin. It shows the percentage of altcoins that have grown faster than bitcoin over a certain period of time (usually 90 days). For example, if the index is 80%, it means that 80% of the assets tracked are growing faster than bitcoin.

The Altcoin Index shows which cryptocurrencies are growing faster in value: Bitcoin or alternative cryptocurrencies (altcoins). It is believed that if the altcoin season has just begun, it will not end soon.

Insights from past altcoin seasons

There have been two alt seasons. The first growth began on 1 March 2017 lasted 310 days and had an index of approximately $470 billion. The second global altcoin season started on 3 January 2021. 

Bitcoin's dominance receded and fell sharply, bottoming out on 8 September 2022. However, only half of the 614 days of declining Bitcoin dominance were part of the altcoin season. The TOTAL2 index peaked on 10 November 2021, the same day as Bitcoin's peak. 

Predicting the arrival of altcoin season

It is impossible to accurately predict the start of the alt season, as prices and capital flows in the crypto market are influenced by many factors, including the current moment in the market cycle, the state of the macroeconomy, and investor sentiment.

This year, the industry has seen many positive events: Bitcoin halving, the approval of Bitcoin and Ethereum ETFs in the US, and the growth of institutional capital. However, regulators also have negative impacts, such as the sale of large volumes of cryptocurrencies by bankrupt companies and some governments and political instability in the US and other parts of the world.

Considering these events, the Fear and Greed Index, which reflects current investor sentiment, fell to one of its lowest levels in August. This directly impacts the value of digital assets and altcoins. Furthermore, at the time of writing, the Bitcoin Dominance Index continues to rise and stands at 55%, well above the optimal level for the Alt season.

So, is it altcoin season already? Taken together, these indicators suggest that we are still a long way from the start of the altcoin season in October 2024 and that Bitcoin continues to dominate the market.

Signs of coming altcoin season

A single indicator may not be enough to predict the upcoming altcoin season, so multiple methods should be used.

The first is the Bitcoin dominance index in the market; the lower it is, the greater the likelihood of an approaching Altcoin season. It is currently 55%, although, during the previous global altcoin price peaks, it fell to 39%. 

The second indicator is the dynamics of the ETH/BTC price; the higher it is, the more likely the Altcoin season is coming.

There are three signs of the coming altcoin season for you to look out for:

1. Altcoin dominance growth and Bitcoin dominance decline: A consistent drop in Bitcoin's market share often precedes an altcoin season.
2. Increased trading Volume: Rising volumes of altcoins suggest growing investor interest.
3. Positive news sentiment: Favorable development related to specific projects can trigger price surges.Technological Developments: Innovations or upgrades within prominent altcoins can spark renewed interest.

Strategies for trading with the altcoin season index

To capitalize on potential gains during the altcoin season, traders should consider several strategies.

• Diversification: Spread investments across multiple promising altcoins rather than concentrating on one or two.
• Setting Alerts: Use technology to set alerts for key thresholds on the Alt season Index.
• Historical Analysis: Review past performance data during previous altcoin seasons to identify patterns and trends.
• Risk Management: Establish clear exit strategies and stop-loss orders to mitigate potential losses.

Comparing the altcoin season index with Bitcoin dominance

An important detail of every altcoin season is that it occurs after a period of Bitcoin price growth. This means that the main cryptocurrency grows first, and only when it has exhausted its potential does capital flow into the other coins. Traditionally, the drivers of growth after Bitcoin are the major altcoins - Ethereum, BNB, and Solana, then smaller coins, and then most of the tokens available on the market. Conversely, if Bitcoin experiences volatility or declines sharply, it may prompt investors to retreat to riskier assets, such as altcoins.

Bitcoin has already reached its peak price — more than $71,000 — but the altcoin season has yet to arrive. Other cryptocurrencies are still far from their historical highs. For example, the price of Ethereum, the largest altcoin, has reached a local peak this year ($3,882 per coin), but it is still far from its historical peak in 2021 when it cost more than $4,600.

Navigating through common mistakes

Investors often make critical errors during volatile periods, such as potential altcoin seasons.

• Overtrading: Impulsively reacting to short-term price movements can lead to losses.
• Neglecting Research: Failing to conduct thorough research on individual projects before investing can result in missed opportunities or poor choices.
• Ignoring Market Sentiment: Disregarding broader market trends and sentiment can skew investment decisions.

Balancing risks and reward in altcoin season trading

1. Use stop-loss orders. A Stop Loss is a market order to limit losses when the price of an asset falls, tied to a predetermined price. For example, you expect bitcoin to rise from 61k to 63k, but it falls to 56. By placing a stop loss at one of the support levels, such as 60200, the trader could have saved a large amount of money on this trade.
2. Don't hold on to losing positions. If the value of a cryptocurrency is falling - consider selling all or half of it. Don't let small losses turn into big losses. Those who sold bitcoin at $20,000 were shocked by the FOMO when the price of bitcoin rose to $60,000. The following rule of thumb will help you deal with this.
3. Make a trading plan and stick to it. It is important to have a trading plan, especially with cryptocurrencies. The plan should help you decide when to buy and when to sell. Follow the plan and 'play by your own rules'.
4. Use the laddering technique: Instead of investing all your money at once, break it down into smaller chunks to buy an asset at different price points reducing the average cost of an asset. This way, if the price drops after your initial purchase, you can buy more at a lower price.
5. Practice patience and stick to your plan. Trading isn't just about making a quick profit. Sometimes you just need to wait patiently and avoid unnecessary moves. 
6. Use technical analysis. Technical analysis can be used as a guide when to enter or exit a position. For beginners, the best altcoin season indicators are moving averages and the Relative Strength Indicator (RSI), which determines the strength and probability of a trend change. These indicators are easy to understand and give good signals. However, do not use RSI to determine when to enter a market.
7. Diversify your investments. Don't put all your money in one investment. Buy cryptocurrency, but also invest in other things. Some experts say you should keep 2-3% of your total investment in cryptocurrencies. If you can't, make small purchases until you gain more experience.
8. Practice on a demo account. Before you risk losing your own money, you can practice on a simulator. Many exchanges allow you to try out a demo account before trading cryptocurrencies with your own money. You can also go back to this method if you have a series of bad trades - then you can trade fake assets in a demo account or on paper until you are comfortable. 

Trading during the altcoin season presents both opportunities and risks. While substantial gains are possible, volatility can lead to significant losses if not properly managed. Investors should strive for a balanced approach, capitalizing on potential rewards while implementing robust risk management strategies.

Conclusion

The 2024-2025 old season will differ from the previous cycles. However, with the correct approach, it can generate significant profits. The main thing is to stay calm, conduct a thorough analysis, and avoid giving in to emotions.

Remember not to succumb to FOMO and closely monitor indicators, and news. Be aware that it is possible to lose money even in a rising market, stick to a predefined trading strategy, and, above all, be careful.