For crypto investors, there is only one season better than the winter holidays, and that is “altcoin season.” At this time of year, the value of lesser-known cryptocurrencies with smaller market caps (i.e. altcoins) can skyrocket.
Right now, all indicators are flashing green for the arrival of altcoin season. So let’s take a closer look at how altcoin season is defined, what it means for crypto investors, and which cryptocurrencies could benefit the most.
What is altcoin season?
For most of the year, cryptocurrencies tend to follow the direction of Bitcoin (CRYPTO:BTC)which is by far the largest crypto, accounting for 54% of the total market capitalization of the crypto market. If Bitcoin trends higher, most cryptocurrencies will also see an upward trend. And if Bitcoin trends downward, most cryptocurrencies will also see a downward trend.
One might expect the market to follow the lead of the largest and most influential cryptocurrency. This is why market observers tend to focus on Bitcoin whenever they predict the future of the crypto market.
But there are periods during the year – known as “Bitcoin season” and “altcoin season” – where there is a clear shift in this dynamic.
During Bitcoin season, investors flock to Bitcoin, and Bitcoin significantly outperforms other cryptocurrencies. During altcoin season, the opposite happens. Investors are abandoning Bitcoin and moving toward riskier, more speculative altcoins. As this money flows into altcoins, the value of some of them may skyrocket.
Is altcoin season finally here?
Fortunately, there are a few indicators in the crypto market that investors can follow to determine if altcoin season has arrived. But just keep in mind: unlike the winter holiday season, there is no official kick-off date for the altcoin season. Sometimes key indicators give conflicting signals. Other times, there is disagreement among crypto investors over which metric is most important.
Image source: Getty Images.
So that’s what’s so exciting right now for crypto investors: every key indicator seems to be showing the same thing. Yes, altcoin season is here.
The one indicator currently attracting everyone’s attention is the Altcoin Season Index. It’s very simple to calculate: you take the top 100 cryptocurrencies (excluding stablecoins, which don’t change in value) and see how many of them have outperformed Bitcoin over the last 90 days. If at least 75 of these top 100 cryptocurrencies outperformed Bitcoin, then it’s altcoin season.
Currently, the Altcoin Season Index created by CoinMarketCap has a value of 82. And its value has skyrocketed since the US presidential election in November. In the space of a month, the index rose from 33 to 87 before returning to its current level.
The arrival of this year’s altcoin season surprised many investors. After all, everyone was so obsessed with Bitcoin’s rise to the $100,000 price level that they completely ignored what was happening to smaller, lesser-known cryptocurrencies.
Which altcoins should you buy?
As data from CoinMarketCap shows, the performance of these small altcoins over the past 90 days has been staggering. Hedera (CRYPTO: HBAR) is up 481%. Stellar (CRYPTO: XLM) is up 415%. Sui (CRYPTO: SUI) is up 383%. Dogecoin (CRYPTO:DOGE) is up 346%. And XRP (CRYPTO:XRP) is up 329%. This is exactly what you would expect during altcoin season.
For comparison, Bitcoin is “only” up 79% over this same period. Ethereum (CRYPTO: ETH)the second largest cryptocurrency, is up “only” 67%.
So you can understand why the arrival of altcoin season is so exciting for crypto investors. While many investors attempt to buy as much Bitcoin or Ethereum as possible, others turn their money into altcoins, where returns could be considerably higher.
This raises an interesting question: which altcoins should you buy right now? The conventional wisdom is that you should stick to the more established names and higher market capitalization. And you should definitely avoid meme coins, or any other crypto that trades purely based on hype, speculation, and momentum.
With that as a guide, Sui seems particularly interesting right now. Even before altcoin season arrived, this cryptocurrency was turning investors’ heads. This is a highly touted Ethereum competitor that is faster, cheaper, and more efficient to use. Currently, it ranks 17th among cryptocurrencies by market capitalization and is starting to attract the attention of institutional investors.
Beware of Market Timing
Of course, it is important to emphasize that the arrival of altcoin season should not become an excuse to anticipate the market. Remember: the market is very good at fakes, misdirection and emotional manipulation. And, as we’ve seen this year, the value of the Altcoin Season Index can change quite dramatically over a very short period of time.
The last thing you want to do right now is invest in a small, speculative cryptocurrency you’ve never heard of before, only to find out that altcoin season is suddenly over. Don’t try to time the market. Instead, only invest in an altcoin if you believe in its long-term potential.
That being said, even if you don’t believe in altcoin season, it’s definitely worth thinking about which cryptocurrencies could have significant upside potential as we approach 2025. Now might be a good time to find the hidden gem of crypto with the ability to surpass Bitcoin next. year.
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Dominic Basulto holds positions in Bitcoin, Ethereum and SUI. The Motley Fool holds positions and recommends Bitcoin, Ethereum, SUI and XRP. The Motley Fool recommends Hedera Hashgraph. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
