Altcoin season potentially underway but remains limited by market liquidity challenges – CryptoQuant

The 90-day moving average of altcoin trading volume on centralized exchanges has risen since mid-November, potentially signaling the start of an altcoin season, according to CryptoQuant.

CryptoQuant CEO and founder Ki Young Ju shared data showing the trading volume ratio of altcoins compared to Bitcoin (BTC) rose from 1.77 to 2.77 as of Feb. 20.

Ki highlighted that this potentially indicates that “alt season has begun.” Alt season is the period when the prices of altcoins soar compared to BTC.

He added:

“No direct BTC-to-alt rotation, but stablecoin holders are favoring alts. Alt volume is 2.7x BTC. BTC Dominance no longer defines alt season — trading volume does […] BTC isn’t a quote currency anymore.”

However, data suggests that centralized exchange trading is concentrated on the four largest altcoins by market cap: Ethereum (ETH), XRP, BNB, and Solana (SOL).

Despite the rising altcoin/BTC trading volume ratio, the “aggregated altcoin trading volume for stablecoin pairs” remains steady, except for a $60.4 billion peak on Feb. 3.

Selective altcoin season

In December, Ki warned his followers that this bull cycle's alt-coin season would be “weird and challenging” because there is insufficient liquidity to propel the entire sector. As a result, only a few altcoins will soar. He added that the altcoins that are ready to rally to new local highs should follow one of two paths.

The first is creating “paper-wrapped versions” like Bitcoin. He's referring to the ecosystem built around BTC through traditional investment vehicles, such as exchange-traded funds (ETFs), Strategy's BTC acquisitions, and funds investing in BTC.

The second path is to build a real decentralized ecosystem using stablecoins or BTC to ensure that altcoins appreciate independently. Notably, a recent Kaiko report highlighted that the top 10 altcoins by market cap account for 64% of all altcoin daily liquidity despite this value nearly doubling from September to Feb. 11.

Based on CryptoSlate data, only 3 of 22 altcoin sectors registered positive year-to-date performances. 

The average crypto market year-to-date performance stands at negative 24.9% as of Feb. 21, with 13 altcoin sectors registering losses above this threshold, equivalent to 59% of the altcoin market.