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Altseason hasn't even started yet, according to social media trends

  • The altcoin market capitalization hit levels not seen in three years, allowing long-term investors to exit some of their underwater positions.
  • The spike in selling pressure has benefited Bitcoin as many market participants begin to realize this is the cryptocurrency with a higher potential for mainstream adoption. 
  • But the on-going crazy that the DeFi space has seen over the past year could put BTC's dominance at risk of a significant drop that kick starts a new altseason.

The cryptocurrency market is characterized by cycles of over excitement that are followed by massive profit-taking periods. While prices rise quickly, they also plummet fast as wealth gets distributed between Bitcoin and altcoins. A closer look into this phenomenon is essential to understand whether a new altseason is on the horizon.

Social trends to determine capital flows between Bitcoin and altcoins

Bitcoin outperformed the altcoins market in 2020, especially throughout the last quarter of the year, according to a recent report by The TIE. The alternative data for digital assets provider concluded altcoins generated better returns than BTC until mid-December 2020 when the pioneer cryptocurrency entered a "monumental rise." 

Therefore, reshuffling one's portfolio is a must for those who want to generate higher returns on investments.

"If you started with Bitcoin, with only two swaps the entire year - Bitcoin to altcoin in May, and back into Bitcoin in September - the 3x or 4x gains seen by either investment grows to over 7x.

Tweet Volumes Bitcoin vs. Altcoins

Tweet Volumes Bitcoin vs. Altcoins

Identifying when to sell Bitcoin to buy altcoins, and vice versa, maybe a difficult task. However, looking at the ratio between the number of tweets about BTC versus those for each altcoin can simplify this strategy. 

According to The TIE, when market participants increase their chatter about certain cryptocurrencies, they are also trading them, which causes their price to increase. Under this premise, the beginning of a new altseason can be determined by the number of tweets about altcoins.

When looking at Santiment's social trends, it seems like altcoins are currently dominating the chatter in Twitter and other social media networks. Therefore, a new altseason could be about to kick off if The TIE's research proves to be true. 

Social Trends by Santiment

Social Trends by Santiment

The cryptocurrency market prepares for a new altseason

The psychology behind altseason is that when Bitcoin price takes a hiatus, investors divert their funds to other cryptocurrencies with lower market capitalization. The capital flow leads to dramatic pumps, generating significant returns. 

From a technical perspective, a decrease in BTC dominance is indicative of altcoins' increasing strength.

Since March 2020, the altcoin market capitalization has seen a whopping 1,000% increase to $450 billion. From March to September 2020, the rising altcoins' market share was at the cost of Bitcoin dominance, a tell-tale sign of an altseason.

At the time of writing, the altcoins' market capitalization and Bitcoin dominance have seen a similar move. But this time around, altcoins' market share sits at a level last seen three years ago. Hence, two possibilities exist, an end of altseason or the beginning of a new altcoin craze.

If Bitcoin manages to break through its recent all-time high of $42,000, investors might enter a FOMO state, leaving a void in the altcoins market. The capital flow back into the flagship cryptocurrency will trigger the end of the altseason seen since the beginning of the year.

Altcoins Market Capitalization vs. Bitcoin Dominance

Altcoins Market Capitalization vs. Bitcoin Dominance

Conversely, if investors continue booking profits from the outstanding rally that Bitcoin has enjoyed over the last few months, capital will likely flow into the altcoins market. A decisive break of the $450 billion market capitalization will allow some of the legacy altcoins such as Ethereum and Litecoin to catch up with the DeFi coins.

Author

Akash Girimath

Akash Girimath is a Mechanical Engineer interested in the chaos of the financial markets. Trying to make sense of this convoluted yet fascinating space, he switched his engineering job to become a crypto reporter and analyst.

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