In a recent statement, Bitwise Chief Investment Officer (CIO) Matt Hougan addressed ongoing speculation about the early start of the altcoin season. Despite Bitcoin being “only” up a few hundred percent from the lows, the altcoin market is experiencing a significant rally.
Hougan believes the primary driver of the altcoin season is a classic “wealth effect.” Cryptocurrency enthusiasts make money in Bitcoin, feel rich, and then look for more speculative assets to invest in.
This phenomenon is not unique to the crypto economy. This also happens in the traditional fiat economy, where people start investing in small caps, venture capital, and other speculative assets after making money in large-cap stocks.
According to the analyst, the catalyst of the altcoin season is not Bitcoin's percentage return, but the cumulative magnitude of the wealth effect. Since the lows in November 2022, Bitcoin's market value has increased by $1 trillion. By comparison, in previous cycles, the amount of wealth created by the Bitcoin rally, although larger on a percentage scale, was smaller on an absolute dollar scale at this stage of the cycle.
According to Hougan, wealthy crypto investors are starting to take some of their Bitcoin wealth and transfer it to altcoins. Considering the relatively small size of most of these coins, it does not require a lot of money to increase the price significantly. More wealth means more money poured into more projects.
An additional catalyst for the altcoin season is the significantly improved technology infrastructure for altcoins compared to past cycles. Developments like the Dencun update on Ethereum and the rise of Layer 2s are real technological advancements that make non-monetary or tangentially monetary uses of the public blockchain much more interesting than they have been in the past.
Hougan thinks this does not mean that the bull market or the altcoin season will end early. Historically, altcoin season has limited Bitcoin's rise as marginal capital shifts from Bitcoin to the rest of the market. But Bitcoin's 2024 rally is being driven by entirely new money flowing into the ecosystem via ETFs—money not originating from cryptocurrencies.
This suggests that the “wealth effect” may continue for a while as long as more new money comes in (via ETFs) than old money goes out into altcoins.
As a result, according to the analyst, this time an “everything season” may occur instead of an altcoin season.
*This is not investment advice.