Here's Why Every Crypto Investor Needs to Know About Altcoin Season

Holidays are times of feasting and conviviality, and that's obviously why many people look forward to the last few months of the year. And if cryptocurrency had the equivalent of the holidays, pretty much everyone would say that it would be called altcoin season.

But unlike the calendar days we mark off for celebrating Thanksgiving and other festive times, altcoin season (more typically known simply as alt season) doesn't have set timing, nor a set duration. Nonetheless, it's a much-anticipated time of outsize returns, especially for coins other than Bitcoin, like Ethereum (CRYPTO: ETH), Solana (CRYPTO: SOL), XRP (CRYPTO: XRP), and even meme coins like Dogecoin, among a myriad of smaller coins.

If you don't prepare for it or if you don't know what it is, you're probably going to be leaving some money on the table, so let's take a few minutes and learn about alt season.

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How to spot an altcoin season

Definitions of alt season vary, but they tend to have major themes in common. In a nutshell, alt season is the time of tremendous altcoin outperformance relative to Bitcoin, which is said to typically occur roughly a year and a half or so after a Bitcoin halving (April 2024 in this case), when rewards for mining Bitcoin are cut in half and supply growth slows. Ethereum is often the first coin to blast off, which means it could be on the verge of happening right now.

Historically, big alt runs often follow after Bitcoin's momentum cools and investors reach for riskier crypto assets. The generally hypothesized reason for this activity is that Bitcoin holders, newly wealthier after the normal post-halving bull run, are then more willing to try to roll their gains into assets that have more room to rise.

The relevant metric to track here is called Bitcoin dominance (sometimes abbreviated as BTC.D), which is the percentage of total crypto market value held in that digital token. When dominance falls, as it has for the past few months, capital is usually rotating toward altcoins.

Altcoin seasons are usually short; plan for an absolute maximum of six months, with periods ranging from two to three months being more common. But also understand that those can be a very, very profitable few months. For instance, during the 2021 alt season, Solana gained 421% from late August to the end of the year, while Ethereum gained 36%.

After an altcoin season, bear markets tend to follow shortly thereafter, in which nearly all altcoins can lose 80% or more of their value on average. The best performers tend to be the long-term survivors, which is another reason it's important to be tuned in.

Prepare like a serious investor

If you hold altcoins, you will likely never get a better opportunity to sell than during an alt season. That means the time to examine your investment theses is now. If there is anything in your theses about your altcoin holdings that has changed or that makes you want to off-load your investments, alt season is the time to do it, assuming it actually happens.

This isn't the same as timing the market, which you generally should not try to do. It's planning ahead to exit coins that you are interested in realizing a profit on, during a period when your profitability will be the highest -- at least until the next alt season rolls around. Nailing the perfect moment of highest profit is not going to be possible, so the smartest move once an alt season is confirmed is to start slowly selling in batches during a 60-day period or so.

Risk management is not optional here, and a long-term perspective is also mandatory. More than half of all cryptocurrencies launched since 2021 have already failed or stopped trading, a sobering baseline for expectations during and after any alt run.

In other words, one of the highest priorities investors have during alt seasons is to avoid over-investing due to fear of missing out (FOMO), which is guaranteed to be an increasingly powerful force the longer the season drags on. Buying when prices are skyrocketing will feel thrilling, but it will almost certainly leave you with investments that are deep underwater for years after the music stops.

But how should investors act if signs of alt season appear? Decide in advance which positions you will trim into strength and which you will continue holding for the next few years. The goal is to harvest gains without hollowing out long-term positions.

It's also important to buy coins with real fundamentals when the tide goes out. Fees, revenue, active users, and real integrations tend to matter most once the bout of speculative euphoria recedes.

In closing, remember that alt seasons are not for chasing. Understand the pattern, monitor the signals, and decide in advance how to behave.

If the expected capital rotation kicks in, investors with a blueprint will have a far better shot at turning volatility into progress toward their goals. If it does not, the same blueprint leaves you with a resilient core and a future-facing set of assets.

Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.