"The Mystery of Loss in 'Shanzhai Season': The Market Has Shifted from General Rise to Rotation, Opportunities Belong to Those Who Adapt to Change"
The driving force behind the counterfeit season is the influx of large amounts of liquidity into the market.Original Title: “Is 'Altcoin Season' A Myth?”
Author: Crypto, Distilled
Compilation: Deep Tide TechFlow
Is "Altcoin Season" A Myth?
For the past two years, I have been focused on the altcoin market.
However, one mystery remains unsolved: the much-anticipated "altcoin season" of 2021 did not arrive as expected.
Here, I will explain the reasons and provide some suggestions for optimizing altcoin strategies.
First, let's define "altcoin season."
Definition: When altcoins outperform $BTC, and the overall value surges.
This is a time of prosperity for the altcoin market, driven by the market's euphoric sentiment.
You can think of it as a rising tide that lifts all boats.
That's what a strong altcoin season does—it almost elevates every sector.
What drives it? A massive influx of liquidity into the market.
Tracking Liquidity Flow
Historically, there have been two main sources of this liquidity:
Retail investors bringing new capital through CEXs
BTC flowing out from CEXs to altcoins on CEXs
Liquidity then further trickles down along the market cap ladder and risk curve.
Seasoned investors are very familiar with this dynamic, often referred to as "the path to altcoin season."
Lalapalooza Effect
The path to altcoin season in 2021 was once very clear, but it no longer exists.
I believe the reasons are multifaceted, resulting from the interplay of several factors.
Individually, each factor's impact is not enough to change much.
However, when these factors combine and move in the same direction, the effect is significant.
Famous investor Charlie Munger described this effect as the Lalapalooza effect.
(Note: The Lalapalooza effect describes the powerful impact that occurs when multiple psychological and behavioral economic biases simultaneously influence human decision-making. This effect suggests that when multiple psychological factors affect a person's judgment at the same time, the outcome can be much greater than the influence of a single factor.)
So, what effects are at play here?
I see several and will do my best to explain them:
- Project Overload
Despite ample market liquidity, the extreme saturation of projects has overwhelmed it.
Imagine there are so many boats on the sea that they exceed the tide's ability to lift them.
Only a few sectors, like AI and the SOL ecosystem, have truly experienced strong growth during "altcoin season."
The previous scenario of rising tides lifting all boats has now evolved into a selective rotation game.
As @Rancune_eth put it, it's somewhat like PvP battles in "The Hunger Games."
- Token Dilution: Hidden Resistance
Token dilution, especially due to token unlocks, has suppressed a "altcoin season" like that of 2021.
This often-overlooked factor absorbs a significant amount of natural capital inflow.
No matter how advanced the technology, if supply exceeds demand, prices struggle to rise.
@thor_harvisten recently analyzed the major releases for 2024.
The average circulating supply of these projects is about 14%, with $70 billion worth of tokens waiting to be unlocked.
When project overload combines with oversupply, it leads to a challenging situation for altcoin season.
- Adoption as a Double-Edged Sword
The increased adoption of traditional finance is a double-edged sword for cryptocurrency.
On one hand, it enhances the credibility of cryptocurrencies;
On the other hand, it attracts a large number of smart talents into the field.
While more talent may seem beneficial, it actually enhances market efficiency.
As more smart people turn to cryptocurrency, finding a competitive edge becomes more difficult.
- Bitcoin ETF: A New Dynamic in the Market
Yes, you read that right.
The approval of Bitcoin ETFs has changed the landscape for the altcoin market.
Before ETFs, investors primarily bought Bitcoin through tier-one centralized exchanges (T1-CEXs).
This was beneficial for altcoins as it facilitated the trickle-down effect of liquidity.
Investors could easily shift from Bitcoin to investing in altcoins.
However, this time, the situation for investors is different.
Those buying Bitcoin through ETFs face a more complex path when entering the altcoin market.
The current on-chain user experience deserves a separate article for discussion.
- Perfect Storm: The Impact of COVID-19
Why was 2021 so special for the altcoin market? It has a lot to do with the unique environment at that time.
Due to lockdown measures, capital flow and people's screen time were unusually high.
This created excellent conditions for cryptocurrencies to attract retail investors.
Given the rarity of this situation, it is reasonable to view 2021 as an outlier.
People are still intoxicated by the prosperity of 2021, and that goal seems distant.
Quick Recap
With a rich discussion, let's summarize:
The altcoin market has shifted from a general rise to a game of capital rotation.
As the market becomes more rational, finding investment advantages requires more effort.
Project overload and oversupply are consuming market liquidity.
The impact of Bitcoin ETFs has disrupted the traditional path of altcoin bull markets.
Practical Suggestions
With a wide range of content, here are some actionable suggestions:
Pay attention to fully diluted valuations (FDVs) and market saturation.
Keep a close eye on the development of ETFs and areas of deep institutional involvement, such as RWA. These areas may have different and more favorable dynamics in the coming years.
In a market flooded with altcoins, do not focus solely on dollar value. Compare altcoin valuations with Bitcoin ($BTC). Holding high-risk but low-return assets is unwise. Evaluating altcoins relative to Bitcoin can provide a clearer measure of their strength.
Strive to gain your investment edge. This is not just about increasing assets but also about enhancing your knowledge, skills, and network.
Conclusion
There are many opportunities in the crypto market, but they require more effort and a fresh perspective.
The market changes rapidly, and success will belong to those who can adapt quickly.
Please note that this content is not financial advice, merely my personal insights.
