- Altcoins could outperform Bitcoin in the upcoming altseason, but also carry significant risks.
- Careful selection and timing are crucial to benefit from the altseason.
The crypto market is known for its high volatility, which brings both opportunities and risks. A particularly exciting phase is the so-called “altseason”, in which altcoins, i.e. all cryptocurrencies except Bitcoin, show a better performance than Bitcoin itself. However, German financial advisor Nikolai Galozi warns:
“Many altcoins disappear forever in the depths of the bear market afterwards.”
The Downside of the Altseason
Altseasons typically occur at the end of a Bitcoin bull cycle when the general market sentiment is euphoric and demand is rising. This leads to strong price increases in some altcoins, but these can quickly collapse again due to a lack of fundamental data.
Galozi emphasizes that the altcoin market often functions like a bubble in bull markets, leading to unjustified price increases. Traders can profit from these increases in the short term, but untimely selling can lead to permanent losses.
Examples of Failed Altcoins
The history of the crypto market is full of altcoins that were once highly traded but are hardly relevant today. IOTA, once celebrated as the “Bitcoin killer”, is unknown to many today and is trading 97% below its 2017 high. XRP, for years the second largest cryptocurrency, has lost massive value since the SEC lawsuit against Ripple. Litecoin, the “digital silver”, has lost its narrative and is trading 85% below its peak.
When is the next Altseason coming?
Galozi expects Bitcoin to reach the peak of its dominance in the next two months due to the macroeconomic environment. He points to the expected interest rate cut in the US, which could lead to higher demand for riskier investments such as altcoins.
However, he also warns that an interest rate cut is fundamentally a sign of economic weakness, which can create selling pressure.
“Only after the correction of asset prices do the looser monetary conditions begin to drive the markets to new highs and crypto assets start to outperform again,”
says Galozi.
How should investors position themselves?
Galozi advises keeping a position in Bitcoin in the portfolio and diversifying part of it into altcoins once Bitcoin dominance has peaked.
Other experts such as Richard Durant, head of asset manager Narweena, however, do not yet see any clear bullish signals and advise waiting for further signs.
“I will only become optimistic about Bitcoin’s prospects if a recession leads to a sharp drop in prices and central banks cut interest rates and inject liquidity into the system, creating a more favorable environment for speculative assets,”
Durant commented.
The recent market development, in which most major altcoins performed worse than Bitcoin, underscores the risks of the altseason. Investors should therefore weigh carefully and be prepared for high volatility.