Is there still an alt season for Crypto Assets?

Author: Phyrex Source: X, @Phyrex_Ni

Yes, I believe that forks are bound to occur. However, the timing of their emergence should be directly related to liquidity.

The emergence of altcoin seasons is often accompanied by an increase in liquidity. As seen in the chart, if ETH is considered the largest altcoin, its correlation with US liquidity is very high. However, when liquidity rises, it first flows into large-scale assets, such as the S&P 500, then into medium-sized assets, like $Bitcoin, and finally flows into altcoin assets, such as $ETH.

Therefore, it can also be seen that during times of liquidity shortage, large-scale assets are affected the least, while medium and small-scale assets are impacted more significantly. In other words, ETH is the second-largest cryptocurrency after BTC, so the data shows it can still remain somewhat close. If it were to be compared to other altcoins, the impact of liquidity changes would be even more pronounced.

This means that during liquidity peaks, the rise will be more intense, while during liquidity troughs, the decline will be very harsh. Therefore, when liquidity has not significantly increased, the possibility of an altcoin season does indeed seem lower. In fact, altcoins are similar to the Russell 2000 in the US stock market.

The chart shows that the Russell 2000 is severely affected by liquidity. Even though there is a trend of liquidity rising in a short period, it can easily lead to a sharp decline. This is quite different from major assets that have “external forces”. For instance, in the US stock market, the AI industry is in a favorable position, attracting a lot of funding, while small-cap stocks naturally get “bled out” during times of poor liquidity.

The same principle applies to cryptocurrencies, except that BTC has stimulated both on-chain and off-chain liquidity buying due to the emergence of spot ETFs. However, since the overall liquidity has not improved, it essentially means that liquidity is being drawn from other assets.

From the comparison chart, the trends on both sides are very similar, both influenced by U.S. liquidity, especially when liquidity is insufficient. An increase might be relatively manageable, but once a decline occurs, non-quality assets are the first to be eliminated and the last to be bottomed out. Therefore, it represents that the S&P 500 and BTC often experience the least drop and the fastest rise during market fluctuations.

In conclusion, it is indeed true that a season of copycats will emerge, but accompanying this season of copycats will inevitably be a rebound in liquidity. From the current perspective, the rebound in liquidity requires, on one hand, monetary policy to continue moving towards easing to enhance investors’ risk appetite, and on the other hand, direct liquidity stimulus to increase the funds in the market, such as halting balance sheet reduction, the cancellation of SLR, or QE.

So without the injection of liquidity, the situation for altcoins would at most be short-term spikes and drops, making it difficult to sustain for a longer period and form an altcoin season.