Early start of alt season likely to come as soon as meme coins cool off

As Bitcoin (BTC) price continues to forge north, its effective impact on meme coins continues to dwindle. A sector that was previously recording double-digit gains has since cooled off, with Dogecoin (DOGE) and Shiba Inu (SHIB) posting a meager 5% and 0.70% in gains while other large market capitalization-sized altcoins record more gains.

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Meme coins lag as other altcoins show strength

Ethereum (ETH) price is holding well above the $4,000 psychological level, which remains a crucial milestone for the largest altcoin by market capitalization. With it, other altcoins are showing strength, with Ripple (XRP) rising 16% while Cardano (ADA), Avalanche (AVAX), Polkadot (DOT) and Chainlink (LINK) rally 7%, 15%, 9% and 7% respectively.

Other altcoins posting significant gains include Litecoin (LTC) up 20%, Stellar (XLM) with nearly 12% and the Near Protocol (NEAR) price with 15% in gains as AI crypto coins rally ahead of the Nvidia 2024 GTC Conference. A trader and investor on X, @CryptoTony_, alludes to a cool off among meme coins as other altcoins pump.

Bitwise CIO Matt Hougan recently opined, “…the primary driver of alt season is a classic wealth effect,” adding, “Crypto natives make money in Bitcoin, feel rich, and then look for more speculative assets to invest in.”

Referring to market rotation and wealth effects, Hougan’s description was typical of how people make money in projects with large capitalization and then shift their attention to alternatives of lower market capitalization size. This, in his opinion, is not catalyzed by “percentage return of Bitcoin but the cumulative size of the wealth effect.”

It therefore means that wealthy crypto investors are now moving some of their BTC profits into altcoins. This is a typical altcoin season, where investing in altcoins provides better returns compared to Bitcoin. Consequently, the dominance that Bitcoin holds in the market declines, and that of altcoins increases.

Why this alt season could be different

Although an altcoin season tends to suck out liquidity from the BTC market, the 2024 play could be different, and could prove longer because the ongoing bull market is different. For starters, the impressive rally in Bitcoin price comes well ahead of the halving.

While the previous plays have seen altcoin seasons  limit the upside potential of Bitcoin price amid marginal capital shifting out of BTC into the rest of the market, in the 2024 scenario, the Bitcoin price rally is propelled by fresh capital from institutional players after the landmark approval of spot BTC exchange-traded funds (ETFs) on January 10.  

Amid this frenzy, investor caution is critical to avoid falling victim of projects that camouflage in the bull markets to trade at exaggerated valuations before an epic collapse.