The cryptocurrency market is dominated by Bitcoin, the first and most popular digital currency that was created in 2009. However, Bitcoin is not the only game in town. There are thousands of other cryptocurrencies, collectively known as altcoins, each offering different features, functions, and benefits to their users. Some of the most well-known altcoins include Ethereum, Litecoin, Ripple and Dogecoin.
They often follow the price movements of Bitcoin. Though at times they diverge and outperform Bitcoin in terms of market share and returns. This phenomenon is known as altcoin season, or alt season for short. This happens when investors shift their attention and money from Bitcoin to altcoins, thus creating a surge in demand and price for the latter.
But what causes alt season? What are the pros and cons of investing in altcoins during this time? Here are my thoughts.
Please do note that the information I have provided here should not be construed as a financial advice.
Pros of Alt Season
- Higher returns: Altcoins can offer higher returns than Bitcoin, especially for new or emerging projects that have a lot of potential and hype. For example, in 2017, Ethereum rose by over 9,000%, while Bitcoin rose by about 1,300%. In 2021, Dogecoin soared by over 5,000%, while Bitcoin rose by about 100%.
- Diversification: Investing in altcoins can help diversify your portfolio and reduce your exposure to the risks and volatility of Bitcoin. For instance, if Bitcoin faces a major setback or challenge, such as a regulatory crackdown or a network attack, altcoins may be less affected or even benefit from it.
- Innovation: Altcoins can offer innovative solutions and features that Bitcoin cannot or does not provide. For example, Ethereum enables smart contracts and decentralized applications that can power various sectors and industries. Litecoin offers faster and cheaper transactions than Bitcoin. Cardano aims to create a more scalable and sustainable platform that can support social and financial inclusion.
Cons of Alt Season
- Higher risks: Altcoins are generally more risky and unpredictable than Bitcoin, as they are more susceptible to market manipulation, hacking, fraud, or technical issues. Moreover, many altcoins have low liquidity, meaning that they are harder to buy or sell without affecting their price. Additionally, many altcoins have no intrinsic value or use case, and they may lose their relevance or popularity over time.
- Regulatory uncertainty: Altcoins face more regulatory uncertainty than Bitcoin, as they may fall under different legal frameworks or jurisdictions depending on their nature and purpose. For example, some altcoins may be considered securities or commodities by regulators, which may impose stricter rules and requirements on them. Some countries may also ban or restrict the use of certain altcoins due to their potential impact on their monetary policy or financial stability.
- Competition: Altcoins face intense competition from each other, as well as from Bitcoin and other emerging technologies. There are thousands of altcoins in the market, each vying for attention and adoption. However, only a few of them may survive or succeed in the long run. Furthermore, Bitcoin may also improve its technology and functionality over time, making it more attractive and competitive compared to altcoins.
And as I always do at the end of my Medium articles:
I therefore conclude that the so-called Altcoin season is indeed an exciting and dynamic time for the cryptocurrency market. It offers new opportunities and challenges for investors and crypto-enthusiasts like us. However, it is also a risky and uncertain time, as it requires careful research, analysis and decision-making. Thus, before spending and investing your hard-earned money to any altcoins during alt season, it is important to do your own due diligence and be aware not just with the potential rewards but as well as the pitfalls involved.
