Why can't this bull market replicate the 2021 copycat season?

Written by: Distilled

Compiled by: Deep Wave TechFlow

Introduction

Over the past two years, I have followed the altcoin market wholeheartedly. However, the market has always had a question: the long-awaited "copycat season" similar to 2021 has not yet appeared.

Here, I will explain why and provide suggestions for optimizing your altcoin strategy.

Let us first define "copycat season". Definition: When altcoins outperform Bitcoin ($BTC) and prices surge across the board.

This is a time when the altcoin market is booming and the market is filled with ecstasy. Think of it like a rising tide in the ocean lifting all the boats.

That’s what a strong altcoin season can do, it boosts just about every sector. What's the driving force? It’s a massive amount of liquidity flooding into the market.

Tracking the flow of liquidity

Historically, there are two main sources of this liquidity:

• New inflows from retail investors through centralized exchanges

• Liquidity outflow from Bitcoin on centralized exchanges (CEX) to altcoins

Liquidity then slides down the market capitalization ladder and further along the risk curve. OGs are very familiar with this dynamic, often referring to it as "the road to copycat season."

Lalapalooza Effect

The path to the 2021 altcoin season was clearly visible, but now it is missing. I think the reasons are multifaceted and are the result of a combination of several factors.

Taken individually, each variable is not enough to make a big difference, however, when combined and pointing in the same direction, the effect is huge. Famous investor Charlie Munger describes this effect as the Lalapalooza effect.

So what is the reason for the combined effect here? I see a few and will try to explain them.

1. Too many projects

The market is full of liquidity, but the extreme saturation of projects makes it overwhelmed. You can imagine that there are more ships than waves in the ocean.

Only specific fields like artificial intelligence (AI) or SOL ecology have truly felt the wave of "copycat season".

What was once a rising tide that lifted all boats has become a selective rotation game, similar to the PvP nature of The Hunger Games.

2. Token Dilution: The Hidden Handbrake

Token dilution, especially from token unlocks, makes 2021-style altcoins Season is blocked.

This often overlooked factor absorbs a large amount of organic inflows. No matter how good the technology is, if supply exceeds demand, it will be difficult for prices to rise.

Some investors recently conducted a sampling survey of major project releases so far in 2024. The average circulating supply of these projects is about 14%, and there is $70 billion in funds waiting to be unlocked.

What happens when a market combines oversaturation with oversupply? The answer: Conditions get tough during the cottage season.

3. The double-edged sword of adoption

TradFi’s increase in adoption has been a mixed bag. On the one hand, it increases the credibility of cryptocurrencies, and on the other hand, it brings more talent to the crypto space.

More talent may appear to be beneficial, but it actually increases market efficiency. If more smart people turn to cryptocurrencies, it will be harder to find an edge.

4. Bitcoin ETF: A New Development

The approval of the Bitcoin ETF changes the rules of the game for altcoins. Before ETFs, the main way to obtain Bitcoin was through centralized exchanges.

This is great news for altcoins, as investors can easily switch from Bitcoin to try altcoins.

This time, different people are buying Bitcoin.

Those who buy Bitcoin through ETFs face a more complicated path to enter the altcoin market.

5. The Perfect Storm: The Covid-19 Effect

Why is 2021 so compelling for altcoins? A lot of this has to do with the unique circumstances.

With the lockdown in place, money flows and time spent interacting online have been particularly high.

This creates the perfect conditions for cryptocurrencies to attract retail investors, and given the rarity of such conditions, it’s reasonable to view 2021 as an outlier.

Everyone is still “indulged” in the highs of 2021; but the copycat season of this bull market seems out of reach.

Conclusion

Review of this article

• The altcoin market has gone from a general ebb and flow to a rotational game.

• As there are more smart people in the market, it takes more effort to find an advantage.

• Project saturation, along with a massive oversupply of tokens, is draining liquidity.

• The traditional altcoin season path has been disrupted, mostly due to Bitcoin ETFs.

Practical Advice

This article covers a lot, so let’s make it actionable:

• Focus on Completeness dilution valuation (FDV) and saturation rate.

• Pay close attention to the development of ETFs and industries with heavy institutional participation, such as RWA. These may present different and possibly more favorable opportunities in the coming years.

• Don’t just look at USD value when the market is flooded with altcoins. Compare altcoin valuations to Bitcoin ($BTC). There is no point in holding assets that are riskier and offer lower returns. Evaluating altcoin performance relative to Bitcoin can provide a clearer indicator of strength.

• Work hard to your strengths. It's not just about growing assets, it's also about enhancing your knowledge, skills and network.

There are many opportunities in the cryptocurrency market, but they require more effort and new perspectives. Markets change rapidly, and success will favor those who can adapt quickly.

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