The first cryptoasset that most people buy is Bitcoin. That’s natural. But as investors move from nervously dipping their toes into crypto to gaining confidence and investigating the rest of this vast market, there comes a natural trend towards portfolio diversification. And there are several more reasons why altcoin season is now back on the table. 

The Coinbase effect

The Coinbase IPO will not just bring forward a new generation of crypto investors, it “is going to blow people’s minds,” Matt Hougan, chief investment officer of Bitwise Asset Management told CNBC. And it is notable that a $100bn debut valuation when COIN hit the market on 14 April 2021 dwarfs the market cap of NASDAQ Inc — which runs the tech-heavy NASDAQ exchange — four times over. 

This crypto IPO will be the first of many — and Coinbase’s largest US rival Kraken has indicated just that, as it prepares its own potential listing in 2022. So the lines between crypto finance and traditional finance are blurring. 

What we’re seeing now is a clear indication that investors are treating Bitcoin as they would the largest companies on the FTSE 100 or the S&P 500: a relatively stable asset that should form part of most large-cap market trackers and funds. 

Smaller cryptoassets further down the tree draw closer parallels with those kinds of fast-growth, illiquid, more volatile small-cap equities you would normally find trading on the junior tiers of established stock exchanges, like NYSEAmerican, Canada’s TSX-V or London’s AIM market. Investors see more risk and more potential reward.

BTC dominance and altcoin market cap

Precisely when these ‘altcoin seasons’ begin and end is hotly debated in the crypto community. But one way to track this historically is to look at Bitcoin dominance. This is a measurement of how much Bitcoin’s market cap contributes to the total market cap of all cryptoassets. 

When capital starts to flow away at an accelerated pace from Bitcoin to the alternative coins on the market, we can suggest that altcoin season is starting.

Dipping back into the history books for a moment, the last major altcoin season occurred back in 2017, at the peak of the last crypto bull market. It was a fragile and short-lived event, as told by news websites at the time. 

Altcoins began gaining sharply against BTC in early February 2017, with Bitcoin dominance declining from a peak of 86.5% to 38% by mid-June 2017. Over that period ETH gained from 5.92% to 31% while XRP soared from 0.96% to 9.8%.

However.

“As quickly as it came, the euphoria that permeated the market died down,” writes Brad Berabi for Tokens24. In the six months that followed, BTC regained half the market share it lost, hitting 62% by the end of December 2017. 

Now, those kinds of figures are starting to return. At time of writing in mid-April 2021, Bitcoin dominance has fallen to 53%, a two-year low.  

Looking at a chart of the altcoin market cap — that’s everything outside of BTC — we can see that April 2021 saw it nudge above $1 trillion for the first time in history. 

Source: TradingView

Smaller assets are dragged upwards by Bitcoin’s momentum, sure. But there’s a clear crossover point around the end of January 2021 where Bitcoin’s rise (the orange line) starts to falter, and it is instead the altcoins (blue line) start to pull away. 

Source: TradingView

Retail 2017 vs Institutional 2021

It’s a fairly widely-accepted fact that 2021’s market is not so retail driven as it was in 2017. We can see this in the much heavier buying by large institutions and billion-dollar hedge funds. That’s not to mention the myriad multinational publicly-listed companies turning away from inflationary cash to make cryptoassets their treasury reserves.

Other analysis bears out the theory. Messari's tracking of how crypto venture capitalists are investing — for example Andreessen Horowitz buying large amounts of Filecoin, Compound, Maker, Flow and Celo — is a clear indication of much deeper liquidity in mid-cap and small-cap cryptos in 2021.  

That’s why altcoin season will last much longer this time around. It’s not just the odd private investor investigating which cryptos could break into our current crop of top 10 cryptoassets by market cap. It’s entire investment bank trading desks, teams of analysts and vast swathes of new investors buoyed by the Coinbase bombshell listing to plunge feet first into crypto.