Altcoin season looms for cautious crypto investors
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Illustration: Brendan Lynch/Axios
The phrase "altcoin season" may start popping up in your timeline, and that's because other cryptocurrencies are rising in value much faster than bitcoin.
The big picture: It's starting to look like one of those frothy times when a good trader can make massive gains making bets on cryptocurrencies most people have never heard of.
- This kind of thing was rife in 2017 and common in 2021, times when the best traders made loads of money, not by finding value, but by expertly riding the waves of public attention.
State of play: The share of bitcoin in the total cryptocurrency market is down around 7% for the last month.
- Of the top 20 digital assets (excluding stablecoins and derivatives), 16 have been up more than bitcoin over the last week.
Zoom out: Some people will make a lot of money in an altcoin market, but it's just as easy for amateurs to end up underwater.
- "Most people don't have the patience to do it properly," Chris Cecere, a former Brevan Howard trader who now runs crypto firm Traditional Digital, told Axios.
- The big coins, like bitcoin and ether, have people who buy them long term, so they don't tend to crash out as hard or as quickly.
How it works: During a boom, new tokens launch all the time. Some of them get massive hype, with big name backers and a strong on-trend narrative.
- A point arrives in altcoin cycles when social media seems to have a coin of the week, one asset that everyone is obsessed with.
- "The issue with those is, they go up when crypto money goes in, but crypto people are not buy and hold people," Cecere said.
- Those traders hit a target number and dump. A normal person can easily go to sleep up 200% and wake up down 50%.
Threat level: This is a narrative-driven space, and for every person's opinion about the "right strategy" for the next big coin, someone is making that coin.
- It's easy for new arrivals to talk themselves into believing long term in a project that's really a flash in the pan.
Yes, but: Greg Magadini, a director at digital asset data firm Amberdata, said altcoins present an opportunity for the average person to get returns on the crypto spot market that traditional traders only get with leverage.
- That means the most they will lose is what they put in, which is the good side. On the downside, it can be very hard to find that winning ticket, but it can be tempting to make too big of a bet when you think you have.
- The best risk management, according to Magadini, is keeping bets small and gradual. Ladder up if something in your portfolio rises, but always watch for that quick turn.
The bottom line: There's one quick way to make the downside worse: borrowing money.
- "Leverage is the kiss of death in alts," Cecere said. "If you're going to be impatient and use leverage, then you're done."
