Why hasn't the knockoff season returned, and how should investors respond?

Author: Crypto, Distilled, Crypto KOL

Compiled by: Felix, PANews

TL;DR: Reasons include project saturation, token oversupply, increasing market intelligence, and Bitcoin ETFs breaking the traditional altcoin season path.

After Bitcoin halving, altcoins usually soar, which has been the "rule" of past bull markets, but the highly anticipated "altcoin season" has yet to appear. Crypto KOL Crypto, Distilled analyzed the reasons for this phenomenon and provided suggestions for investors to optimize their strategies.

What is "Altcoin Season"?

Altcoin season occurs when the performance of altcoins surpasses that of Bitcoin, leading to a widespread price surge. This is a period when the altcoin market thrives under optimistic sentiment, much like rising tides lifting all boats. Altcoin season drives the development of almost all sectors, with a significant influx of liquidity being its driving force.

Liquidity Tracking

Historically, liquidity has primarily come from two sources:

• Retail funds flowing in through centralized exchanges (CEX)
• Bitcoin flowing out from CEX to altcoins on CEX

Then, liquidity flows down the "ladder" of market capitalization rankings. OGs are very familiar with this dynamic, often referring to it as the "altcoin season path."

Lalapalooza Effect

The "altcoin season path" was very clear in 2021, but it has now vanished. The author believes the reasons are multifaceted and the result of several factors working together.

The power of individual factors is insufficient to change much. However, when they combine and exert influence in the same direction, the effect is substantial. Renowned investor Charlie Munger described this effect as the "Lalapalooza effect." (Note: The Lalapalooza effect refers to the phenomenon where multiple interconnected factors combine to create a strong amplification effect.)

What impact do so many factors combined produce?

1. Project Saturation

While market liquidity is abundant, projects are extremely saturated. Imagine there are more boats in the ocean than waves.

Only certain areas, such as AI or the SOL ecosystem, will feel the true wave of "altcoin season." The once prevalent "rising tide lifts all boats" has evolved into a selective rotation game, similar to the PvP nature in the movie "The Hunger Games" (projects competing against each other).

2. Token Dilution: An Invisible "Handbrake"

Token dilution (especially dilution from token unlocks) has stifled altcoin seasons like those in 2021. This often-overlooked factor absorbs a significant amount of liquidity. No matter how good a project's technology is, if supply exceeds demand, prices struggle to rise.

A community user @thor_harvisten conducted a sampling survey of tokens launched in 2024 so far. The average circulation rate (circulation/supply) of these project tokens is about 14%, with approximately $70 billion worth of tokens waiting to be unlocked.

What happens when project saturation combines with oversupply of tokens? Altcoin season becomes difficult to sustain.

3. Increased Adoption is a Double-Edged Sword

Increased adoption in traditional sectors is both good and bad. On one hand, it enhances the credibility of cryptocurrencies; on the other hand, it makes the field more competitive. If more smart people turn to cryptocurrencies, it becomes harder to find industry opportunities.

4. Bitcoin ETF: A New Dynamic

The approval of Bitcoin spot ETFs has changed the landscape for altcoins. Before ETFs, the primary access channel for Bitcoin was through CEX. This was good for altcoins, as investors could easily shift from Bitcoin to try altcoins.

This time, the buyers are different. Those purchasing Bitcoin through ETFs do not have such a direct path into the altcoin market.

5. Impact of the COVID-19 Pandemic

Why was 2021 so unusual for altcoins? It largely relates to the unique environment. Under lockdown conditions, both capital flow and screen time were very high, creating perfect conditions for cryptocurrencies to attract retail investors.

Given the rarity of this situation, it is reasonable to view 2021 as an outlier. Everyone is still immersed in the highs of 2021, but the glory is no longer there.

Here’s a quick summary of the reasons for the "disappearance" of altcoins:

1. The altcoin market has shifted from rapid growth to rotational play.
2. As market intelligence increases, finding opportunities requires more effort.
3. Project saturation, combined with oversupply, is draining liquidity.
4. The traditional altcoin season path has been broken due to Bitcoin ETFs.

So how should users respond in the current market environment:

1. Pay close attention to fully diluted valuation (FDV) and saturation rates.

2. Keep an eye on ETF developments and areas with significant institutional participation, such as RWA. In the coming years, these may have different sectors and even more favorable dynamics.

3. In a market flooded with altcoins, do not only look at the dollar value of projects. Comparing altcoin valuations with Bitcoin valuations can provide a more accurate assessment of altcoin strength.

4. Work harder to gain an advantage. This is not just about increasing assets but also about enhancing knowledge, skills, and networks.

Conclusion

The crypto market still holds numerous opportunities, but it requires more effort and a fresh perspective. The situation is ever-changing, and those who can adapt quickly are more likely to succeed.

Related reading: Exclusive Interview with Shen Yu: The main incremental funds come from ETFs, and this bull market may not have an altcoin season