Altcoin Season: To Be or Not to Be?


The slings and arrows of outrageous fortune, or to take arms against a sea of troubles.

 

Overview

The cryptocurrency markets seem going through another trendless situation as major cryptos have initially recovered from the September selloff. Despite some of the altcoins have rebounded to the pre-selloff levels, yet, they mostly remained in the upper side of the recent trading range, and still haven’t developed a trend reversal. Meanwhile, bitcoin also struggled to reclaim some of the key levels and have been drifting sideways. So, where will we go from here? Bitcoin or altcoins now? How should we play the post-selloff markets? These are the questions traders have been asking. Major altcoins have outperformed bitcoin during the post-selloff rebound, does that mean a new “Altcoin Season” has just started?

 

XRP Temptations

Bitcoin has been struggling to show sustainable rebound momentum after the September selloff, at the same time, the recovery of some major altcoins has been gaining tractions. There is no surprise that traders have started to shift their focus from bitcoin to altcoin. That fact that charts and data suggest that some altcoins look more attractive than bitcoin. Let’s take XRP as an example, figure 1 shows that XRPUSDT seems in a bullish flag formation and forming a second flag in a 6-hour chart. Despite the pair could need more time to consolidate before developing the third flagpole, it’s still considered a bullish sign in general, and a better-looking chart than BTC.

OKEx’s data also suggests that there’s more potential upside for XRP, at least for the short term. OKEx’s XRP Long/Short Ratio (figure 2) has been hovering near/at the all-time low in early October. A lower ratio means a lower potential profit for traders with short positions, and that could stir up the appetite of XRP.

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Lucrative Big Picture?

The crypto community has been discussing the declining bitcoin’s market dominance and the market sentiment shift over to altcoins, some comments even suggest that this could be a new start of an “Altcoin Season”, the chart below could help us to look at the bigger picture.

We would like to highlight the Fundstrat Crypto 10 Index (blue line) and the Fundstrat Crypto 40 Index (orange line) here. The FS Crypto 10 Index tracks the 10 largest and most liquid digital currencies, including bitcoin, Ethereum, Ripple, Litecoin, DASH, IOTA, and Monero. While the FS Crypto 40 Index tracks the top 11 to 50 digital currencies by market value and liquidity, including NEM, BitConnect, and Lisk.

Just very recently, the FS Crypto 40 Index made a bullish crossover of the FS Crypto 10 Index, this phenomenon could suggest that 1. market sentiment could have started to shift from larger coins to smaller coins. 2. Smaller coins performances could have started to improve. 3. Larger cryptos were slightly underperformed compared to their smaller peers. This is especially noticeable when we put XRP (purple line) and BTC (yellow line) in the same chart.

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New “Altcoin Season”? Too Early to Call

While we’ve seen initial evidence showing that the current market conditions seem more favorable to altcoins, however, we believe it’s still too early to call for a new start of an “Altcoin Season”. Despite the somewhat improved technical indicators, altcoins’ social metric seems telling another story.

A study from The Tie (figure 4) shows that altcoins seem out of favor on major social media, as the mentions of “Altcoins” and “Altseason” nosedived in early October. As we all know, crypto social metrics and the price movement of cryptocurrency are highly correlated. Take bitcoin for example, when social buzz and search traffic increase, usually the price will follow suit. When the mentions of altcoin rock bottomed, its doubtfully a start of an Altcoin Season.

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Moreover, when we reference the so-called “Altseason environment” back in mid-September, where bitcoin traded sideways for an extended period. Although there was still no obvious reason behind that altcoin price surge, some believe there were bitcoin traders turned into the altcoin space to look for opportunities as bitcoin consolidated within a narrow range. However, the September altcoin rally was short-lived, and the question we have now is, whether the markets believe that rally is repeatable in the current circumstance, but at this stage seems unlikely.

 

Same Old Tune

So how traders should set up their trades? Buy the dip in bitcoin? Or chase the rally in altcoins? That’s the question traders have been repeatedly asking. In our previous publication “Party’s Over?”, we’ve discussed how to play the September altcoin rally. We still believe that traders should limit their altcoin exposure, while bitcoin should remain as their primary focus, and the market cap data could give us more clues.

Figure 5 shows the total ex-bitcoin crypto market cap, which has been in a downtrend since mid-July, even the “Altcoin Season” in September was unable to deliver a trend reversal. Additionally, the index has been staying below its 365-day moving average for a while, it will hardly be an “Altcoin Season” if the index is below that moving average.

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Although the altcoin picture may not look as rosy as it suggests, however, that doesn’t mean traders should ignore them completely. Traders can take advantage of various tools in the markets such as futures contacts and perpetual swap to capture price movements regardless of the directions. Yet, these altcoin strategies are more suitable for short-term or day traders. For HODLers, it seems like bitcoin remains a better choice for them. In the weekly publication, OKEx Technicals sees some institutional asset names have been building up bitcoin long position after the September selloff. Unlike leveraged accounts, institutional asset managers tend to hold bitcoin for a longer time, and this could provide some grounds for bitcoin to build up its rally momentum.

This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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