Is ‘Bitcoin season’ real or a maximalist theory?

With Bitcoin (BTC) continuing to hold ground above the all-important $60,000 psychological threshold for two weeks running, a growing chorus of voices seems to be echoing the sentiment that the market may be in the midst of another “Bitcoin season.” 

This basically refers to a window of time where money flows from various altcoins back into the flagship cryptocurrency until eventually, the interest starts to dry up and the capital once again starts to move back into different altcoins.

To assess whether such a notion really exists and is worth paying any attention to, Cointelegraph reached out to Kadan Stadelmann, chief technological officer of Komodo — an open-source technology provider. In his view, the Bitcoin season phenomenon is very real and seems to drive market psychology quite heavily, adding:

“For new institutional money entering the space, Bitcoin seems like a ‘safe bet’ since it is the market cap leader. It’s considered less risky, but it also has less chance of high returns because it takes numerous large whale purchases to impact the price in either direction.”

Stadelmann went on to state that for retail investors, their general outlook is fairly different since a majority of these individuals are generally looking to find altcoins that can deliver 10x or 100x returns, even if the proposition is much riskier in the long term. “It’s inevitable that when alts reach a certain price level, that profits will flow either back into less volatile cryptocurrencies like Bitcoin or stablecoins,” he added.

A dive into the “Bitcoin season” narrative

Ross Middleton, chief financial officer of decentralized cryptocurrency trading platform DeversiFi, thinks that whenever Bitcoin starts moving upward, it usually “sucks the oxygen” out of smaller tokens, resulting in most traders rotating back into Bitcoin. 

Subsequently, once Bitcoin starts to level off, traders start to rotate back into altcoins until the flow of funds becomes so large that they are effectively bid-stealing from larger tokens. “Bitcoin then usually dips sharply lower as over-leveraged traders are liquidated. Then the whole cycle starts again with Bitcoin gradually moving upwards again,” Middleton stated.

Providing a somewhat unique take on the matter, Wes Levitt, head of strategy at Theta Labs — the company behind the blockchain-powered video streaming network Theta — told Cointelegraph that the Bitcoin season theory is valid and can be considered a primitive form of sector rotation that is traditionally seen in the equities market:

“It’s an encouraging sign that we see even more granular cycles across different crypto sectors — i.e., between DeFi [decentralized finance], Layer-one protocols, exchange tokens, etc. — as it implies the capital going into crypto is becoming more sophisticated.”

Katherine Deng, vice president of cryptocurrency exchange MEXC Global, told Cointelegraph that she holds a similar view — i.e., money first comes into Bitcoin every bull cycle only for it to then start moving into other territories including altcoins, nonfungible tokens (NFT), GameFi, DeFi and even stablecoins. “The drive for these flows is innovation, or we could say micro innovation in this bull market like COMP introducing liquidity mining, or AXS entering the play-to-earn market,” she said.

Not everyone is convinced 

Although there are significant periods where Bitcoin’s dominance increases and altcoins lose ground, Nick Merten, CEO of crypto trading platform Digifox and creator of crypto-centric YouTube channel DataDash, told Cointelegraph that he personally does not heed such narratives. Elaborating on his stance, he pointed out:

“In the last cycle, as well as this one, altcoins generally outpaced Bitcoin. Considering markets of scale and that there will always be new exciting opportunities within the altcoin market, it’s hard to justify remaining mainly in Bitcoin during bull markets. I’m of the opinion that the ‘Bitcoin season’ is not going to last.”

He further argued that the market is yet to even really witness a real alt season, even though the entirety of 2021 has seen the dominance of altcoins either grow or hold their general support levels quite well. “My belief is that altcoin dominance will continue to grow towards 75% in this cycle — i.e., between the maturing of DeFi and emerging layer-one protocols,” he said.

A similar point of view is shared by a spokesperson for Binance, who wished to remain unnamed. They told Cointelegraph that there is insufficient evidence available to substantiate the narrative of a Bitcoin season, adding:

“BTC constitutes more than 40% of the market, and thus, when it rises, it attracts a lot of attention, and some capital might choose to rotate into it and vice versa. As crypto adoption is accelerated globally, there are more funds and people coming into the market. When more people buy Bitcoin, the price will go up simply due to its limited supply.” 

When will the ongoing Bitcoin cycle end?

In Deng’s view, it is anyone’s best guess as to when this ongoing Bitcoin bull run will end, adding that technical indicators seem to suggest that we may already be in the middle of an ongoing cycle. She further stated that altcoins such as Shiba Inu (SHIB) are performing well during this current run, which goes to show that even in a Bitcoin-dominated market, there is always money that will continue to flow into other offerings. Deng said:

“With the launch of Bitcoin ETFs [exchange-traded funds], increased participation of many public companies, as well as the expansion of the NFT artwork space, there is improved liquidity in the entire market. We may have more refined movements between coins, rather than a single cycle between BTC and alts solely moving forward.”

Levitt believes that just because some altcoins such as Chainlink (LINK) and SHIB are doing well at the moment, doesn’t mean that the current Bitcoin cycle is going to end anytime soon, adding that as long as institutional money and adoption continue to increase, the ongoing trend will continue to last. 

“Trying to discern the state of the crypto market by studying SHIB is a little like trying to predict the S&P 500 based on how GME has been trading,” he stated jokingly.

Stadelmann also believes it’s tough to gauge when a Bitcoin cycle will end and when a new alt season will come into action, especially since whenever BTC starts to do well, the entire market begins to trend upward with it. That said, he did concede that there are always certain outliers, many of which are usually driven by whale accumulation. He said in this regard:

“It was announced on Sept. 23 that 50 trillion SHIB donated for India’s Crypto Covid Relief had all been sold for USDC [USD Coin]. That reduced fears of any market sell-off on a similar scale. That was followed by a large purchase of 6 trillion SHIB (now worth over $270 million) on Sept. 30. This means that each cryptocurrency doesn’t follow the ‘Bitcoin season’ and ‘altcoin season’ narrative.”

The future remains unpredictable

There is no denying that the crypto market has matured a lot over the last couple of years, something that Binance’s aforementioned spokesperson believes has given birth to newer narratives aside from the Bitcoin season theory. For example, they believe that other than money just flowing in and out of Bitcoin into other altcoins, the DeFi market and NFTs, too, have started to function as standalone domains today.

Lastly, they highlighted that owing to the fact that the number of altcoins keeps growing with every passing day, it is difficult to predict where the market may be headed in the near to mid-term. 

“Similar to other investment classes, different crypto sectors now perform uniquely based on a myriad of factors. It is difficult to comment on altcoins because there are many altcoins, and we can’t always predict where they are going.”