Traditionally, the alt season has been the highlight at the end of nearly every Bitcoin price rally. In fact, on the back of Bitcoin’s recent performances, a rally in the price action of the market’s altcoins is much anticipated for the year 2021.
When Ethereum crossed its ATH recently, the market’s top-25 alts by market capitalization all rallied. However, the said rally was short-lived. On the contrary, Ethereum registered an extended price rally, going beyond $1,600 on the charts too. Interestingly, investing either in the market’s top-100 altcoins or in Bitcoin would give close results, closer than expected.
As can be observed from the attached chart, investing in the market’s top-100 altcoins may give a better yield, when compared to Bitcoin. This is a significant conclusion, especially since Bitcoin tops the chart in risk-adjusted returns when compared to real estate, U.S stocks, precious metals, and emerging national currencies. In conclusion, the chart leads a trader to the question – Which altcoins do I need to buy, HODL, and trade, if my portfolio is to beat Bitcoin in terms of risk-adjusted returns? The answer, however, is not a simple one.
It is challenging to predict whether an altcoin will rally or whether it will be volatile in light of the fact that most alts’ market capitalization and liquidity are low. A better strategy could be swapping Bitcoin with altcoins periodically within shifting market cycles to book 3x or more gains on your investment.
On close consideration, one may observe it is difficult to tell one Bitcoin season from the altcoin season. The relative trade volume of Bitcoin is leveraged over altcoins, and it offers more opportunities for profit booking in tranches. Based on Bitcoin’s current market dominance and market capitalization, the altcoin season may be around throughout all or most market cycles, and the selection of altcoins and their trade volume will make the most difference.
Further, it has been observed that abnormally high trade volume in the top-100 altcoins corresponds with the time when their price rallies, offering the highest returns in the market cycles. If Bitcoin’s trade volume is abnormally high, it is profitable to own Bitcoin, and likewise for altcoins.
However, there is a way out of this chicken or egg situation by balancing a portfolio with 10+ altcoins from the top-100 and Bitcoin. As low as 15% of your portfolio can correspond to Bitcoin and have a positive impact on the returns, corresponding to Bitcoin’s price rally.
There may be an alt season, however, in the current market cycle, it may coincide with Bitcoin’s extended price rally.