Why can't this bull market replicate the altcoin season of 2021?

Original source: Distilled X account

Author: Distilled

Compilation: Deep Tide TechFlow

Introduction

For the past two years, I have been wholeheartedly focused on the altcoin market. However, there has been a lingering question in the market: the long-awaited "altcoin season" similar to that of 2021 has yet to materialize.

Here, I will clarify the reasons and provide suggestions to optimize your altcoin strategy.

Let’s first define "altcoin season." Definition: When altcoins outperform Bitcoin ($BTC) and prices soar across the board.

This is a period of thriving altcoin markets, filled with euphoric sentiment. You can imagine it as the tide of the ocean lifting all boats.

That’s what a strong altcoin season can do; it boosts nearly every sector. What drives this? It’s the influx of substantial liquidity into the market.

Tracking Liquidity Flows

Historically, there have been two main sources of this liquidity:

1. New retail inflows through centralized exchanges

2. Liquidity flowing from Bitcoin on centralized exchanges (CEX) to altcoins

Then, liquidity trickles down the market cap ladder, extending further along the risk curve. OGs are very familiar with this dynamic, often referring to it as "the road to altcoin season."

Lalapalooza Effect

The path to the altcoin season in 2021 was clear, but now it seems absent. I believe the reasons are multifaceted, resulting from a combination of several factors.

Individually, each variable may not cause significant change; however, when combined and pointing in the same direction, the effect is tremendous. The famous investor Charlie Munger described this effect as the Lalapalooza effect.

So, what are the reasons for the combined effects here? I see several and will do my best to explain them.

1. Too Many Projects

The market is filled with liquidity, but the extreme saturation of projects makes it overwhelming; imagine there are more boats in the ocean than there are waves.

Only specific sectors, like artificial intelligence (AI) or the SOL ecosystem, have truly felt the tide of "altcoin season."

The scenario where the tide lifted all boats has turned into a selective rotation game, akin to the PvP nature of "The Hunger Games."

2. Token Dilution: A Hidden Handbrake

Token dilution, especially from token unlocks, has hindered a 2021-style altcoin season.

This often-overlooked factor absorbs a significant amount of organic inflows; no matter how good the technology, if supply exceeds demand, prices struggle to rise.

Some investors recently conducted a sampling survey of major projects released in 2024 so far. The average circulating supply of these projects is about 14%, with $70 billion waiting to be unlocked.

What happens when the market combines excessive saturation with oversupply? The answer is: the conditions for an altcoin season become difficult.

3. Adoption as a Double-Edged Sword

The increase in TradFi adoption is a mixed blessing. On one hand, it enhances the credibility of cryptocurrencies; on the other hand, it brings more talent into the crypto space.

More talent may seem beneficial, but it actually increases market efficiency. If more smart people turn to cryptocurrencies, finding an edge becomes more challenging.

4. Bitcoin ETF: A New Dynamic

The approval of Bitcoin ETFs has changed the game for altcoins. Before ETFs, the primary avenue for acquiring Bitcoin was through centralized exchanges.

This is good news for altcoins, as investors can easily shift from Bitcoin to try altcoins.

This time, the people buying Bitcoin are different.

Those buying Bitcoin through ETFs face a more complex pathway to enter the altcoin market.

5. Perfect Storm: The Covid-19 Effect

Why was 2021 so remarkable for altcoins? It largely relates to the unique environment.

With lockdowns in place, both the flow of funds and the time people spent interacting online were exceptionally high.

This created the perfect conditions for cryptocurrencies to attract retail investors; considering the rarity of such conditions, it is reasonable to view 2021 as an outlier.

Everyone is still "intoxicated" by the highs of 2021; however, this time, the altcoin season of the bull market seems distant.

Conclusion

Recap of This Article

1. The altcoin market has shifted from a general rising tide to a rotation game.

2. With more smart people in the market, finding an edge requires more effort.

3. Project saturation and significant oversupply of tokens are consuming liquidity.

4. The traditional path to altcoin season has been disrupted, primarily due to Bitcoin ETFs.

Practical Suggestions

This content covers a lot, so let’s make it actionable:

1. Focus on fully diluted valuation (FDV) and saturation rates.

2. Keep a close eye on ETF developments and heavily institutionalized sectors, such as RWA. These may present different, potentially more favorable opportunities in the coming years.

3. When the market is flooded with altcoins, don’t just look at dollar value. Compare the valuation of altcoins against Bitcoin ($BTC). Holding assets with higher risk and lower returns makes little sense. Evaluating altcoins relative to Bitcoin can provide a clearer strength indicator.

4. Work on your edge. This is not just about increasing assets; it also involves enhancing your knowledge, skills, and network.

There are many opportunities in the cryptocurrency market, but they require more effort and a new perspective. Market conditions change rapidly, and success will favor those who can adapt quickly.