Why Bitcoin’s next breakthrough may not be a hint of an altcoin season

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Many investors look for bullish breakouts in Bitcoin to signal the start of the new altcoin season, but statistics reveals that this method is faulty.

Bitcoin (BTC) achieved an all-time high of $64,900 on April 14 after gaining 124.5 percent in 2021. However, a 27.5 percent drop ensued over the next eleven days, resulting in a $47,000 local low.

On April 25, the famous Crypto Fear and Greed Index fell to its lowest level in a year, showing that investors were approaching “extreme fear,” a full reversal from the “extreme greed” level observed during the Bitcoin rise over $60,000.

From April 14 to April 25, the altcoin market capitalisation fell by $200 billion. Still, the subsequent recovery might serve as a pointer for what to anticipate when Bitcoin ultimately breaks out of the sub-$40,000 range.

 

Bitcoin price in USD, Coinbase. Source: TradingView

Altcoins posted a similar trend, bottoming at $850 billion on April 22 but fully recovering to a record $1.34 trillion high on May 10. There is no guarantee that this pattern will repeat, but there is no better source of information than the recent market itself.

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Altcoin market capitalization, USD billion. Source: TradingView

Cheaper does not always imply superior

Many investors assume that as the price of Bitcoin rises, altcoins regularly outperform, but is this true?

Despite this being the case in 2021, Bitcoin was the obvious winner in the fourth quarter of 2020, outperforming the broader market by 110 percent. However, examining the winners of the late-April bull run may give useful insight into what to expect from the upcoming rise.

 

Top altcoin performances from April 22 to May 9. Source: CoinCodex

Ether Classic (ETC), Polygon (MATIC), Waves, and Fantom (FTM) were the obvious winners among the top-100 tokens. Scaling solutions or smart contract platforms emerged as winners, while industry leader Ether (ETH) outpaced the market.

Eighty percent of the poorest performance were sub-$1 coins, which is exactly the reverse of what investors expect. There is a recurrent misconception that inexpensive, nominally-priced cryptocurrencies would outperform during altcoin rallies, but this was clearly not the case.

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Worst performance from the top-100 altcoins between April 22 to May 9. Source: CoinCodex

It is impossible to time the market.

Unfortunately, there is no way to forecast when the present drop will finish, and cryptocurrencies do not often do well during down markets. This implies that declaring a ‘alt season’ at the first evidence of Bitcoin’s price recovery is a risky tactic that can lead to financial catastrophe.

Two or three consecutive days of 30 percent or greater aggregate gains on cryptocurrencies with little-to-no development, such as Dogecoin (DOGE), Litecoin (LTC), and Ether Classic, are a good starting point for a ‘alt season’ (ETC).

 

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