Introduction
Is It Time To Buy Altcoins? This question comes in front of us these days. Cryptocurrency has been making headlines for years, and it’s no secret that investing in altcoins can be a lucrative endeavor. However, the key to success in the crypto world lies in knowing when to buy and, equally importantly, when to sell. The current state of the crypto market is a topic of constant debate and speculation. As the market appears to be in a bearish phase, the question that’s on everyone’s mind is: Is it the right time to accumulate those promising altcoins before the next bull run? In this article we are going to see Is It Time To Buy Altcoins? In this guide, we will delve into various metrics, factors, and considerations that can help you navigate the turbulent waters of the crypto market. Our aim is to provide you with insights that could indicate the ideal time for accumulation and give you a sense of the potential gains that may await you in the next bull market.
Understanding the Crypto Market Cycle
The crypto market is no stranger to cycles. It often follows a predictable four-year pattern, a rhythm set in motion by Bitcoin’s halving events. The last Bitcoin halving occurred in May 2020, an event that sent shockwaves across the entire crypto ecosystem. In the year and a half that followed, we witnessed Bitcoin surging by approximately 7x, Ethereum by more than 20x, and countless altcoins, like ADA, shooting up by a staggering 100x or more.
Now, the next Bitcoin halving is scheduled for April next year. This date has the crypto community buzzing with excitement and anticipation. The prospect of a halving event, with its inherent supply constraints, has historically driven up cryptocurrency prices and triggered remarkable bull runs.
Factors Impacting the Crypto Market Cycle
While the crypto market has a history of adhering to a four-year cycle, not every cycle is as clear-cut as the last. Some have been slightly longer, and others have unfolded more rapidly. What’s particularly intriguing about the current crypto bear market is that it seems abnormally prolonged. The reasons behind this extended bear market are manifold, depending on who you ask. One prevailing theory is that cryptocurrencies are now closely linked to macroeconomic factors. In simpler terms, cryptocurrencies are dancing to the same tune as traditional assets, particularly tech stocks. This correlation means that the fate of crypto prices is often tethered to broader market movements. For example, if tech stocks experience another downward swing, the crypto market could follow suit. This isn’t out of the realm of possibility, considering macroeconomic factors like interest rates and geopolitical tensions. However, it’s essential to note that this correlation hasn’t held as strongly in recent months. During this period, crypto prices have been primarily influenced by cryptocurrency-specific factors. For instance, Bitcoin barely flinched in response to a higher-than-expected Consumer Price Index (CPI) print, yet it surged by 10% on the mere rumor of a spot Bitcoin Exchange-Traded Fund (ETF) listing. The primary headwinds facing the crypto market today are regulatory in nature. These regulatory challenges have made institutional investors wary of dipping their toes into the crypto waters. It’s no secret that many of these regulatory hurdles are unlikely to be cleared any time soon. Although a bullish catalyst, such as the approval of a spot Bitcoin ETF, could reignite the market, this is improbable without resolving the regulatory issues. Even if the ETF does get the green light, it may not be the instant remedy for the current lack of interest in crypto, as evidenced by the Ethereum Futures ETF’s recent approval. An ETF listing merely sets the stage for a larger bull market, which is an event that will eventually come to pass.
The Role of Bitcoin and Its Relationship to Altcoins
In the world of cryptocurrencies, Bitcoin has often been considered a safe-haven asset. When the broader market is turbulent and prices are plummeting, investors have historically flocked to Bitcoin. This “digital gold” perception has helped Bitcoin maintain its status as a reliable hedge in times of financial turmoil.
Moreover, Bitcoin’s forthcoming halving event, expected sometime in April next year, has all the ingredients to capture the attention of investors. As we approach this date, we can anticipate growing interest in Bitcoin. Some might argue that it’s all but guaranteed, especially given that the final deadline for the U.S. Securities and Exchange Commission (SEC) to rule on BlackRock’s spot Bitcoin ETF application coincides with the lead-up to the Bitcoin halving. This regulatory timeline sets the stage for heightened investor interest in Bitcoin.
Naturally, when the spotlight is on Bitcoin, it’s highly probable that interest in altcoins will wane. The practical result of this shift in focus is that altcoin prices could continue to decline, and some might even experience significant drops of 50% or more if the broader crypto market takes another nosedive. However, history indicates that once the Bitcoin halving occurs, BTC starts to rally, and as it does, money flows into altcoins. Investors tend to become more comfortable taking bigger risks within an already volatile asset class.
The Role of Catalysts in Altcoin Cycles
If you’ve been part of the crypto community for a while, you might recall that, during the 2020 crypto market, decentralized finance (DeFi) was the catalyst that triggered the shift of funds from Bitcoin to altcoins. DeFi’s explosive rise was fueled by its protocols, which started issuing tokens with mind-boggling gains and unimaginable staking interest rates.
In hindsight, DeFi Summer was the first domino to fall in the altcoin bull market. It eventually led to astronomical gains for so-called Ethereum Killers like Solana. Interestingly, DeFi tokens themselves, after the initial hype subsided, struggled to reclaim their former glory.
If history indeed repeats itself, the next altcoin bull market might be initiated by another crypto niche that undergoes a meteoric rise. In our video about the crypto niches to watch for the next bull run, we expressed our optimism about so-called Solana Killers, DeFi protocols, and decentralized social media, among others. We’ll explain the reasoning behind this shortly.
Assessing the Crypto Market with Bitcoin Dominance and ETH-BTC Pair
When trying to gauge where we stand in the Bitcoin-altcoin cycle, there are a few essential metrics to consider. One straightforward method is to examine Bitcoin dominance. This metric measures the proportion of total crypto market capitalization attributed to Bitcoin. Over the last year, Bitcoin dominance has been on the rise, and it could potentially reach as high as 56%. This trend indicates a strengthening position for Bitcoin within the crypto market.
Another valuable indicator is the ETH-BTC pair. Ethereum’s value, when measured in Bitcoin, is a simple proxy for evaluating how altcoins are performing relative to Bitcoin. Currently, the outlook for Ethereum is not particularly promising. Based on our measurements, Ethereum could potentially lose up to 30% of its value against Bitcoin in the coming months. Interestingly, this aligns with the observations of our fellow analyst, Benjamin Cowen. This decline could foreshadow a significant shakeout among altcoins when viewed in Bitcoin terms.
Diversification and Altcoin Performance
It’s crucial to remember that not all altcoins move in unison, especially when the spotlight shifts away from Bitcoin. Initially, attention may be directed towards Ethereum, as it holds the position of the
second-largest cryptocurrency by market capitalization. However, beyond that point, it’s anyone’s guess which altcoins will capture the market’s imagination.
As previously mentioned, it’s probable that the first altcoins to experience notable price increases will come from specific crypto niches. For instance, gaming or NFT-related projects might find themselves in the limelight. When these altcoins start gaining traction, you’re likely to experience a familiar sensation: FOMO, the Fear of Missing Out. The initial investment inflows into these niches tend to be substantial relative to their market capitalization, resulting in remarkable gains for early investors.
But here’s a word of caution: The euphoria might be short-lived. Instead of blindly following the latest VC narrative, it’s wise to pause and consider the situation carefully. Reflect on which crypto niches are the most speculative and have the most robust fundamentals.
Speculative vs. Fundamental Factors in Altcoin Selection
The choices made by the most prominent investors are heavily influenced by macroeconomic factors, particularly interest rates. When interest rates are low, large investors may be inclined to gamble on the most speculative cryptocurrencies. Conversely, when interest rates are high, they might favor cryptocurrencies with solid fundamentals.
To put this into perspective, during the last crypto market cycle, the most speculative cryptocurrencies were those that positioned themselves as the “next Bitcoin.” In contrast, the most recent cycle featured cryptocurrencies striving to become the “next Ethereum.” Notably, Ethereum competitors like Avalanche achieved remarkable returns in percentage terms. This dynamic raises an intriguing question: What will be the most speculative cryptocurrencies in the upcoming cycle?
While we can’t offer a definitive answer, we are inclined to believe that the category of “Solana Killers” may emerge as strong contenders. However, this is merely our informed opinion. Ultimately, it’s up to you to identify which crypto niche you perceive as the most speculative in the current landscape.
Market Cap Considerations in Altcoin Selection
When it comes to selecting altcoins, market capitalization plays a pivotal role in predicting potential price movements. Smaller market cap altcoins have the potential for more significant gains in percentage terms. They are often seen as the hidden gems of the crypto world. In contrast, larger market cap cryptocurrencies tend to experience more moderate fluctuations in percentage terms.
However, it’s important to strike a balance between market cap and the sticker price of an altcoin. You should take both factors into account before making your investment decisions. Moreover, it’s important to remember that marketing plays a substantial role in driving investor sentiment.
The Power of Marketing and Narrative
Narratives are powerful tools in the world of cryptocurrency. Different narratives often coincide with various crypto niches, and they can have a profound impact on market dynamics. Narrative-driven investments can lead to substantial price increases in relatively short periods.
A recent example of this is the emergence of the metaverse narrative. When Facebook announced its rebranding to “Meta,” cryptocurrencies related to the metaverse saw remarkable gains. Similarly, air-related cryptocurrencies rallied due to the hype surrounding Chat GPT, reflecting the potency of narratives in shaping market behavior.
Conclusion
By now, you might be wondering how significant the gains could be in the upcoming crypto bull market. The answer, unfortunately, isn’t a one-size-fits-all solution. The potential for gains varies depending on the cryptocurrency you’re considering. Bitcoin, Ethereum, and altcoins all have their unique trajectories, influenced by market dynamics and investor sentiment. To navigate this landscape effectively, it’s essential to stay informed, consider the nuances of market cycles, assess altcoins based on their fundamentals, and remain attuned to the prevailing narratives in the crypto world. The world of cryptocurrency is a constantly evolving one, and opportunities abound for those who are well-prepared and well-informed. While there are no guarantees in the crypto market, being equipped with the right knowledge and strategy can help you make the most of this exciting, albeit volatile, financial frontier.
Now, as you embark on your crypto journey, remember the importance of diversification, careful selection, and staying true to your investment goals. The crypto market has a history of being both thrilling and challenging, and with the right approach, you can aim for success in this ever-evolving landscape.
