Is ‘Bitcoin season’ real or a maximalist theory?

Bitcoin (BTC), which has been holding above the $60,000 psychological threshold for the past two weeks, is a growing chorus of voices voicing concern that the market might be entering another “Bitcoin Season.”

This refers to the time period in which money flows back from different altcoins into the flagship cryptocurrency. Once the interest has dried up, capital will move again into other altcoins.

Cointelegraph spoke to Kadan Stadelmann (chief technological officer at Komodo, an open-source technology provider) to determine if such a concept exists. He believes that the Bitcoin season phenomenon seems very real and drives market psychology quite heavily.

Bitcoin is the market leader in market capital and seems to be a safe investment for new institutional money. Although it is considered less risky than other options, it has a lower chance of high returns due to the large number of whale purchases required to affect the price.

Stadelmann stated that retail investors have a different outlook. They are looking for altcoins that offer 10x to 100x returns even though it is more risky in the long-term. He said that it is inevitable that alts will reach a certain price point, and that the profits will flow back into stablecoins or less volatile cryptocurrencies such as Bitcoin.

Explore the “Bitcoin Season” narrative

Ross Middleton is the chief financial officer at DeversiFi’s decentralized cryptocurrency trading platform. He believes that when Bitcoin moves upwards, it often “sucks oxygen out of smaller tokens,” resulting in most traders returning to Bitcoin.

Traders then start to move back into altcoins once Bitcoin has stabilized. The flow of funds increases until they can effectively steal larger tokens. “Bitcoin usually drops sharply when over-leveraged traders get liquidated. Middleton said that Bitcoin then begins to move upwards.

Wes Levitt (head of strategy at ThetaLabs, the company behind blockchain-powered video streaming platform Theta), offered a unique perspective on the subject. He said that the Bitcoin season theory can be valid and that it is a primitive form sector rotation that has been traditionally seen in the equity market.

“It’s encouraging to see more granular cycles across various crypto sectors — i.e. between DeFi [decentralized financing], Layer-one protocols and exchange tokens, it’s an indication that we are seeing even greater granularities across these sectors. It is a sign that capital flowing into crypto is getting more sophisticated.

Katherine Deng, vice-president of cryptocurrency exchange MEXC Global said that she shares a similar viewpoint. She believes that money first enters Bitcoin in every bull cycle, only for it then to move into other territories, such as altcoins and nonfungible tokens. She said that innovation is the driving force behind these flows, or micro innovation in bull markets like COMP’s introduction of liquidity mining or AXS’s entry into the play-to earn market.

Some people are not convinced.

While there are periods when Bitcoin dominates and altcoins fall, Nick Merten (CEO of Digifox crypto trading platform and creator of DataDash crypto-centric YouTube channel) told Cointelegraph that he does not believe such narratives. He elaborated on his position by pointing out:

Altcoins outpaced Bitcoin in both the last and current cycles. It’s difficult to justify staying in Bitcoin only during bull markets, given the market scale of altcoin markets and the fact that there will always be exciting new opportunities within them. “Bitcoin season” is overrated.

He also stated that there is no real alt season yet, even though 2021 has seen altcoins grow in dominance or maintain their support levels well. He stated that altcoin dominance would continue to rise towards 75% during this cycle, i.e. between the maturing DeFi protocol and emerging layer-one protocols.

A spokesperson for Binance shares a similar view, but he preferred to remain anonymous. Cointelegraph was informed by them that there is not enough evidence to support the story of a Bitcoin season.

“BTC makes up more than 40% of the global market. When it rises, it attracts lots of attention and capital might decide to invest in it or vice versa. With crypto adoption growing globally, more people and funds are entering the market. The limited supply of Bitcoin will cause the price to rise if more people buy it.

When will the current Bitcoin cycle come to an end?

Deng believes that it is impossible to predict when the ongoing Bitcoin bull market will end. However, technical indicators suggest that we could be at the beginning of an ongoing cycle. Shiba Inu (SHIB), an altcoin similar to Bitcoin, is performing well in this current run. This shows that even in a Bitcoin-dominated marketplace, money will still flow into other offerings. Deng stated:

The market is now more liquid thanks to the launch of Bitcoin ETFs (exchange-traded funds), increased participation by many public companies and the expansion of NFT artwork space. There may be more refinement between coins than just one cycle between BTC/alts moving forward.

Levitt believes that although some altcoins like Chainlink (LINK), and SHIB are performing well, it doesn’t mean the current Bitcoin cycle will end soon. He also stated that institutional money and adoption will continue to grow, so the trend will not change.

He joked that trying to determine the state of crypto market through studying SHIB was akin to trying to predict S&P 500 based upon how GME has traded.

Stadelmann believes that it is difficult to predict when a Bitcoin season will end and when the next alt season will start. This is because when BTC does well, the whole market tends upward. However, Stadelmann did admit that there are always exceptions. Many of these are often driven by whale accumulation. In this regard, he said:

“On Sept. 23, 50 trillion SHIB, which was donated to India’s Crypto Covid Relief, were all sold for USDC [USD Coin].” This reduced the possibility of a market sell-off similar to this. This was followed by the large purchase of 6 trillion SHIB, now worth more than $270 million, on Sept. 30. This means that every cryptocurrency does not follow the ‘Bitcoin Season’ and ‘altcoin Season’ narratives.

Future events are unpredictable

It is clear that the crypto market has grown a lot in the past few years. Binance’s spokesperson says that this has led to other narratives, aside from the Bitcoin season theory. They believe that the DeFi market, NFTs, and other crypto currencies have become independent domains.

They also highlighted the fact that it is hard to predict the future direction of the market in the near and mid-term due to the increasing number of altcoins.

Similar to other investment classes and crypto sectors perform differently based on a variety of factors. Altcoins are difficult to evaluate because there are so many of them, and it is hard to predict their future.