Altseason: Understanding the Rotation Cycles and Trading Opportunities in the Cryptocurrency Market

What is Altseason? The Essence of Market Cycles

The cryptocurrency market does not move in a linear fashion but follows clear cyclical patterns. Among the most notable phenomena is altseason—a period when altcoins outperform Bitcoin.

Strictly speaking, altseason refers to a special phase when the total market capitalization of mainstream alternative tokens surpasses Bitcoin’s, and the overall market is in an upward cycle. However, this definition has evolved in recent years. In the past, capital rotated massively from Bitcoin to altcoins; nowadays, trading volume paired with stablecoins has become a more important signal—reflecting genuine market growth rather than mere speculative rotation.

According to data analysis firm CryptoQuant CEO Kai Yingzhu, this shift marks market maturity. Institutional capital is flowing into the altcoin ecosystem, new investors are increasing, and liquidity in stablecoins like USDT and USDC is expanding, providing a more solid foundation for the altcoin market.

Comparing Altseason and Bitcoin Seasons: Two Market Psychologies

Characteristics of Bitcoin-Dominant Periods

Bitcoin seasons typically occur in two scenarios: one, during bear markets or uncertain times, when investors seek safety; two, after a sharp rise in Bitcoin’s price, when funds concentrate in the leading coin. During this period, the Bitcoin dominance index (Bitcoin’s market cap as a percentage of the entire crypto market) rises above 50%, even spiking over 70%.

In this phase, altcoins stagnate or even decline. Risk appetite drops, and investors prefer to hold “digital gold” like Bitcoin.

The Engine of Altseason

Conversely, when the market profits from Bitcoin’s large gains and funds seek new opportunities, attention shifts to projects with more technological innovation and richer ecological applications. Ethereum is often the starting point—its DeFi, NFT, and other ecosystems attract institutions and retail investors alike.

Fundstrat’s Tom Lee points out that Ethereum’s performance often foreshadows a broader altcoin bull market. As institutional investors seek diversification beyond Bitcoin, Layer 2 solutions like Solana, Polygon, and new public chains also attract significant capital.

Where Are the Drivers of Current Altseason?

Market Context at the End of 2024

As of December 2024, the global crypto market cap has reached a record $3.2 trillion, surpassing the peak of the 2021 bull run. Several key factors underpin this achievement:

1. Accelerated Institutional Recognition: Bitcoin spot ETFs received SEC approval in early 2024, followed by Ethereum spot ETFs. These milestone events send a “signal” to institutional investors—that crypto assets are now part of mainstream finance.

2. Policy Expectations Shift: The return of the Trump administration and an increase in crypto-friendly lawmakers have led markets to anticipate a more relaxed regulatory environment in the US. This directly boosts market sentiment.

3. Bitcoin Halving Effect: The fourth halving in April 2024, following historical patterns, typically triggers a price rally over the subsequent 12-18 months.

4. Mature Stablecoin Ecosystem: Widespread use of USDT and USDC ensures ample liquidity in altcoin trading pairs, making entry and exit easier for investors.

The Altseason Index Has Sent Signals

Blockchain Center’s Altseason Index measures the performance of the top 50 altcoins relative to Bitcoin. When the index surpasses 75, it usually indicates that altseason has begun. As of December 2024, the index has risen to 78—signaling that the market is in the “altcoin season” zone.

Historical Patterns: Commonalities and Differences in Three Altseasons

2017-2018 ICO Boom

Bitcoin’s dominance collapsed from 87% to 32%, and altcoins became the market focus. The story was the “ICO financing revolution”—new projects raised funds via token issuance, with Ethereum, Ripple, Litecoin, and others becoming stars.

As a result, total market cap surged from $30 billion to over $600 billion. But the boom was short-lived; regulatory crackdowns and project failures caused this cycle to end sharply in 2018.

2021 DeFi and NFT Frenzy

This cycle saw Bitcoin dominance fall from 70% to 38%, while altcoin market share soared from 30% to 62%. It lasted longer and involved more participants.

DeFi ecosystems exploded (liquidity mining craze), NFTs gained popularity (digitization of art), and memecoins like Dogecoin and Shiba Inu surged in popularity. Market cap exceeded $3 trillion at its peak but cooled down later due to regulatory and macro factors.

End of 2023 to 2024: Multi-sector Growth

This cycle is characterized by industry diversification. No longer driven solely by DeFi or NFTs, the market now includes:

• AI-related tokens (Render, Akash, with over 1000% gains)
• GameFi platforms (ImmutableX, Ronin)
• Evolved memecoins (SnailBrook)
• Solana ecosystem revival (from “dead chain” to vitality)

This indicates a more nuanced and in-depth understanding of investment objects among market participants.

Five Key Signals to Identify Altseason

1. Decline in Bitcoin Dominance Index

Historically, when Bitcoin’s dominance drops below 50% or even approaches 40%, it often signals that altseason has started or is imminent. This is the most direct indicator.

2. ETH/BTC Exchange Rate Rise

Ethereum’s relative price change against Bitcoin is a market sentiment indicator. When this ratio rises, it suggests funds are flowing from Bitcoin into Ethereum and its ecosystem projects—often a prelude to altseason.

3. Surge in Stablecoin Trading Volume

A sudden increase in trading volume of specific altcoins paired with USDT/USDC, often with daily trading volume doubling, is a typical signal. Data from K33 Research shows memecoins (DOGE, SHIB, PEPE, etc.) surged over 40% during certain periods, pushing the entire memecoin sector to new highs.

Similarly, AI tokens (Render, NEAR Protocol) also show sector-wide upward trends.

4. Social Media Buzz and Market Sentiment Shift

Discussions in crypto communities shifting from “How high will Bitcoin go?” to “Which altcoin will double?” often lead price movements. The Fear & Greed Index also shifts from “Extreme Fear” to “Greed.”

5. New Highs in Certain Altcoins

When second-tier projects start breaking their historical highs, it indicates the market has expanded from mainstream coins to a broader range of assets.

Four-Stage Liquidity Rotation Model

Stage 1: Bitcoin Accumulation Phase

Features: BTC price remains relatively stable at low levels, with dominance staying high (60%+). Investors focus on Bitcoin.

Signs: BTC trading volume steadily increases, but altcoins perform modestly.

Stage 2: Ethereum Initiation

Features: Liquidity begins flowing into Ethereum and major DeFi projects. ETH/BTC ratio starts rising.

Signs: DeFi activity increases, Layer 2 solutions gain attention.

Stage 3: Altcoins Take the Lead

Features: Projects like Solana, Cardano, Polygon begin double-digit growth.

Signs: Ecosystem metrics (TVL, active addresses) improve significantly.

Stage 4: Small-cap Coins Explode

Features: Bitcoin’s dominance often falls below 40%, with many new or small-cap coins experiencing parabolic rises.

Signs: Market filled with risk-taking sentiment, highest risk asset proportion.

Trading Strategies and Risk Management During Altseason

Core Recommendations

Do thorough research before entering: Study project whitepapers, team backgrounds, technological innovations. Avoid FOMO-driven decisions.

Diversify holdings: Don’t concentrate funds in a single coin. Mix blue-chip altcoins (Ethereum, Solana) with emerging projects to balance risk and reward.

Set clear targets: Predefine take-profit points (target gains) and stop-loss levels (maximum tolerable loss). Staying rational during market frenzy is crucial.

Control leverage: Although altseason offers opportunities, altcoins are far more volatile than Bitcoin. Using leverage amplifies risks—avoid over-leveraging.

Risks to Watch Out For

Rug pulls and scams: Malicious projects may disappear after siphoning investors’ funds. Common in new or small projects.

Pump and dump schemes: Large holders or organized groups artificially inflate a coin’s price, then sell off, causing losses for late entrants.

Excessive volatility: Daily gains of 20% or drops of 30% are common. Psychological and capital management are vital.

Regulatory surprises: Sudden policy announcements can reverse markets within hours. The ICO ban at the end of 2018 is a classic example.

The Double-Edged Sword of Regulatory Policies on Altseason

Positive effects: SEC approval of spot ETFs and a crypto-friendly government policy can directly boost market sentiment and attract new capital.

Negative shocks: Severe regulatory actions (such as penalties on exchanges) or national bans can trigger panic selling in the short term.

The key lies in policy certainty. Clear and friendly regulatory frameworks attract more institutional capital; ambiguous or hostile attitudes suppress investment enthusiasm.

Outlook: What Will the Next Altseason Look Like?

Based on current conditions, the market is in the early stages of the next altseason. Several factors to watch:

1. Will Bitcoin stabilize in the $90,000–$100,000 range? This could create space for altcoins to compete for liquidity.

2. How will the new US government’s crypto policies unfold? If genuinely supportive, they could unleash a lot of suppressed institutional capital.

3. The depth and breadth of institutional participation. From current ETF sizes and derivatives trading volumes, there is room for growth.

4. Emergence of new narratives. Breakthroughs in AI, RWA (real-world assets on-chain), DePIN, and other fields could spark a new wave of enthusiasm.

Based on past patterns and current data, the next altseason might last longer than 2021’s, but with more complex volatility—because the participant structure (with increasing institutional involvement) means the market will no longer be driven by a single narrative.

Summary

Altseason represents not only price opportunities but also market psychology and capital flow dynamics. Understanding its drivers, recognizing its signals, and managing risks are fundamental to profiting in this cycle.

Rather than blindly chasing, building a systematic trading framework—monitoring key indicators, managing risk exposure, and continuously learning market trends—is the way to harvest gains rather than suffer losses in the next altseason.