This is relevant even when we are talking about the main locomotive of the cryptocurrency market, which is BTC. Compared to this, smaller coins, which number in the hundreds on cryptocurrency exchanges, show even lower predictability. However, this does not repel, and often even attracts gold-seeking traders.

It is such cryptocurrencies that are able to show insane growth by multiplying the trader’s investment in a geometric progression, realizing the expression “To the moon” familiar in this field. However, it is obvious that the risks of such investments are comparable, and even exceed the potential profitability.

Prerequisites and recognition tools

The season of altcoins, or simply “alt season”, is a market cycle in which the price of a significant number of cryptoassets, which are different from BTC, have better growth indices than the above currency. The occurrence of such periods, which occur regularly in the markets, does not have clear prerequisites, and often begins unexpectedly. However, as a certain regularity, experts say this – after a period of active growth of BTC or ETH, a lull is formed in the markets. During it, investors who made money from the previous trend continue to look for investment tools – pay attention to smaller cryptocurrencies, and feed them by adding them to their own portfolio. In fact, this causes an avalanche effect – the liquidity of the markets increases, the general interest in the markets increases, which again leads to the appearance of new investors and an increase in the value of the asset.

To determine the onset of the season, there is even a certain index called “Altcoin Season Index”. The mathematics of its definition is simple – from the total number of TOP-50 most popular and capitalized alcoins (including ETH), those that gave a higher increase than in BTC are determined. For example, if the altcoin season index shows a value of 50%, it means that exactly half of the 50 altcoins (25) have shown better growth than BTC. If the index reaches 75% or higher, the beginning of the high season can be stated. In the case of a drop to 25% and below – the season of bitcoin and mistrust of altcoins.

Trade without losing head

It is unimportant to state the beginning of such a season and the fact of its triviality – if you work with altcoins, you may be treated with special care. First of all, we need to segregate them behind capitalization and trust. It is not possible to equate mental ETH with a fan token, although it would be offensive and formally refer to the concept of an altcoin. This basic fundamental analysis of a coin, which we talked about in one of the previous materials (View: Manimama Exchange experts: about fundamental analysis in cryptocurrency trading), can be used to assess the basis on which it is valued, and at the same time, the confidence for investment.

In addition, even in the period of altcoins, when mathematically there are significantly higher chances of making a profit, when investing, as well as when trading, one should follow the main rule – diversification of risks. For each coin in the portfolio, use the amount that you are morally ready to part with in case the market goes wrong. Situations in the markets are unpredictable, and the end of the long-awaited season can come abruptly, and with it the devaluation of the portfolio.

In the trading product from Manimama exchange, we also offer to add an altcoin to the trading portfolio to increase the return on investment. However, we adhere to clear rules:

1. The coin should be in high positions in the ranking of capitalizations of altcoins
2. A proven strategy on historical data backtests on a one-year and three-year period should give a positive result with returns several times higher than BTC and ETH (risk factor compensation)
3. Investment in altcoin is not more than 5% of the total trading capital. Vigilance in our work and protection of our clients’ investments remains our key priority.

Conclusions 

The season of altcoins is a market cycle when the profitability of alternative coins significantly exceeds the profitability of investments in the main instrument of the cryptocurrency world – BTC. It can be tracked with the help of special indicators, and the onset is characterized by greater confidence of traders in alternative tools. And although the temptation to get extra profits is high, and such a period requires strict risk management rules to be followed to avoid an unwanted, and often fatal, effect on an investment or trading portfolio.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.

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