Jsquare’s Joanna Liang believes a supportive macro backdrop, declining BTC dominance, and a strong new narrative could fuel an altcoin rally.
Coinbase’s head of research, David Duong, argued that current crypto conditions suggest there could soon be a shift towards digital assets outside of Bitcoin. His remarks came amid the recent growth in altcoins this year.
Duong mentioned in Coinbase’s monthly report on Thursday that September might see a push towards a full-scale altcoin season. According to Coinbase, an altcoin season is clear when three quarters of the top 50 altcoins surpass Bitcoin over 90 days.
Duong believes Fed policies might drive retail participation into altcoins
The exchange’s head of research believes that money market funds currently hold a significant amount of retail capital. Duong noted that a record $7.2 trillion is currently sitting in U.S. money market funds.
He argued that the decline of cash balances by $150 billion in April ignited stronger crypto and risk asset performance in subsequent months. Cash balances rebounded by over $200 billion in June, which he believes was at odds with the crypto appreciation witnessed over the same period.
Duong also argued that retail participation was imminent due to the probability of potential Federal Reserve easing in the coming months. His remarks came after July’s Consumer Price Index (CPI) showed moderate inflation at 2.7% YoY. As previously reported by Cryptopolitan, Tuesday’s inflation data increased the chances of the central bank cutting rates in September on futures markets to around 98%.
At the time of publication, CME’s FedWatch tool showed a 93% reduction in the September rate after Thursday’s producer prices showed the quickest rise in three years. According to Duong, interest rate cuts have the potential to draw fresh capital into the market and could ignite an altcoin rally.
He also argued that BTC dominance could influence the beginning of an altcoin rally. The BTC dominance gauge has plummeted 10% from over 65% in May to around 59% by August.
At the time of publication, BTC dominance is currently at 59.36%, its lowest level since January. Duong believes that Bitcoin’s current market dominance signals the early stages of capital rotation into altcoins.
On Thursday, crypto day trader Ito Shimotsuma also noted that Bitcoin dominance had just formed its first monthly bearish cross since January 2021. He stated that in the past, altcoins rallied for only four months when such a scenario occurred. According to him, a similar scenario is likely to occur that will lead to an altcoin rally till December.
ETH institutional interest growth fuels altcoin season
Duong believes the altcoin season is imminent due to the surge in altcoin season indexes in recent months. The altcoin market cap has risen above 50% since early July, but is yet to reach the 75% threshold, which historically determines altcoin seasons.
At the time of publication, CoinMarketCap’s Altcoin Season Index currently sits at 45, up from below 25 in July. CryptoRank’s index is at 50, while Blockchain Center’s remained neutral at 53.
“With the altcoin market cap climbing and the Altcoin Season Index showing early positive signals, we believe conditions are setting up for a potential rotation into a more mature altcoin season as we head into September.”
-David Duong, Head of Research at Coinbase
Joanna Liang, founding partner of Singapore-based venture capital firm Jsquare, said three key conditions need to align for an altcoin season to take place. She explained that a drop in a favorable overall market condition, a drop in BTC dominance, and a strong new narrative are enough conditions to signal an altcoin rally.
Past altcoin cycles were driven by different catalysts such as ICOs in 2017-2018, Layer-1s in 2018-2019, and DeFi/NFTs in 2021-2022. Liang believes that the altcoin market is yet to rally, as it awaits market signals that can inject fresh capital and fuel an altseason.
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