Why hasn’t the copycat season returned yet, and how should investors respond?

Original author: Crypto, Distilled, Crypto KOL

Original translation: Felix, PANews

TL;DR: The reasons include project saturation, token oversupply, increasing market intelligence, and Bitcoin ETF breaking the traditional alt season path.

After the Bitcoin halving, altcoins soared together, which is the "rule" of the previous bull market, but the much-anticipated "alt season" has not yet appeared. Crypto KOL Crypto, Distilled analyzed the reasons for this phenomenon and provided investors with suggestions for optimizing strategies.

What is "alt season"?

When altcoins outperform Bitcoin and prices soar across the board, it is an alt season. This is a period of booming development in the altcoin market driven by optimism, just like rising water lifts all boats. The alt season has promoted the development of almost all tracks, and the influx of a large amount of liquidity into the market is its driving force.

Liquidity Tracking

Historically, liquidity has come mainly from two sources:

· Retail funds flowing in through centralized exchanges (CEXs)

· Outflows from Bitcoin on CEXs to altcoins on CEXs

Then liquidity flows down the “ladder” of market cap rankings. OGs are well aware of this dynamic and often refer to it as the “Road to Alt Season.”

Lalapalooza Effect

The “Road to Alt Season” was clear in 2021, but now it has disappeared. The author believes that the reasons are multifaceted and are the result of the combined effect of several factors.

The power of a single factor is not enough to change too many things. But when they combine to exert influence in the same direction, the effect is huge. Famous investor Charlie Munger describes this effect as the "Lalapalooza effect." (Note: The Lalapalooza effect refers to the effect of multiple interconnected factors in the same direction superimposed to produce a strong amplification effect)

What effect does the combination of so many factors have?

1. Project saturation

Although the market liquidity is abundant, the project is extremely saturated. Imagine that there are more ships in the sea than waves.

Only certain areas, such as the AI field or the SOL ecosystem, will feel the real wave of the "altcoin season". What used to be a "rising tide lifts all boats" has evolved into a selective rotation game, similar to the PvP nature of the "Hunger Games" movie (projects roll each other up).

2. Token dilution: invisible "handbrake"

Token dilution (especially dilution from token unlocking) kills the altcoin season similar to 2021. This often overlooked factor absorbs a lot of liquidity. No matter how good the project's technology is, it is difficult for prices to rise if there is oversupply.

A community user @thor_harvisten sampled the tokens that have been launched so far in 2024. The average circulation rate (circulation/supply) of these project tokens is about 14%, and there are about $70 billion worth of tokens waiting to be unlocked.

What happens when oversaturation of projects is combined with an oversupply of tokens? The alt season is unsustainable.

3. Increased adoption is a double-edged sword

Increased adoption in traditional fields is both a good and a bad thing. On the one hand, it enhances the credibility of cryptocurrencies; on the other hand, it makes the field more sensitive. If more smart people turn to cryptocurrencies, it will be harder to find industry opportunities.

4. Bitcoin ETF: New Dynamics

The approval of Bitcoin spot ETFs has changed the landscape of altcoins. Before the advent of ETFs, the main access channel for Bitcoin was through CEX. This is a good thing for altcoins, and investors can easily switch from Bitcoin to try altcoins.

This time, the buyers are different. Those who bought Bitcoin through an ETF have a less direct path into the altcoin market.

5. Impact of COVID-19

Why is 2021 such an unusual year for altcoins? A lot has to do with the unique circumstances. In a lockdown environment, flows and screen time were extremely high, creating the perfect conditions for cryptocurrencies to attract retail investors.

Given the rarity of this situation, it is reasonable to view 2021 as an outlier. Everyone is still basking in the highs of 2021, but the highs are no longer there.

Here’s a quick summary of why altcoins are “disappearing”:

· The altcoin market has shifted from a rapid rise to a rotation game

· As market intelligence continues to improve, it takes more effort to find opportunities

· Project saturation, coupled with oversupply, is draining liquidity

· The traditional altcoin season path is broken due to the Bitcoin ETF

So how should users respond in the current market environment:

1. Pay close attention to fully diluted valuations (FDV) and saturation rates.

2. Pay close attention to the development of ETFs and areas where institutions are heavily involved, such as RWA. In the next few years, these may have different tracks and even more favorable dynamics.

3. In a market flooded with altcoins, don’t just look at the dollar value of the project. Comparing altcoin valuations with Bitcoin valuations can more accurately assess altcoin strength.

4. Work harder to gain an advantage. This is not just about increasing assets, but also about improving knowledge, skills, and connections.

Conclusion

There are still a lot of opportunities in the crypto market, but it requires more effort and a new perspective. The situation is changing rapidly, and those who can adapt quickly are more likely to succeed.

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　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.