An altcoin rally is every trader’s dream, but how do they come about? Let’s look at some of the reasons why altcoins might pump
While watching the price of Bitcoin can be exciting, the days of huge percentage moves seem to be in the past. Instead, altcoins are what cryptocurrency traders look for when they want massive gains. “Alt-season” is the term used when practically every single altcoin sees major percentage moves. But what causes an altcoin rally?
Bitcoin price
A key factor for an altcoin price rally is the price of Bitcoin. When Bitcoin is doing well, altcoins tend to follow that price movement. The same goes for when Bitcoin is falling – the prices of altcoins will also suffer. With the influx of money going into Bitcoin during a bull run, investors and traders begin to divert their attention to altcoins that may have not caught up yet.
Profits that have been made from the bullishness of Bitcoin tend to flow into the major altcoins. This then cascades down from major altcoins into medium-cap coins and then the smaller-cap coins, bringing the whole market cap of cryptocurrencies up.
Whilst Bitcoin enjoyed huge price gains during 2017, there were many altcoins that vastly outperformed it. Due to a lack of liquidity, it didn’t take as much capital to send many altcoins to the moon before they came crashing back down.
Historically, a bull market has led to altcoins rallying.
FOMO
FOMO plays a big part in altcoin rallies, particularly for first-time investors in cryptocurrencies. Those new to cryptocurrencies often look at the price of Bitcoin as it rises and believe that it has become too expensive and they have missed the boat. Therefore, they look at the vastly cheaper altcoins in the hopes that they can achieve what Bitcoin did and make them extremely wealthy.
With this being the case, many altcoins receive a large amount of retail investment during a bull run. The bull run of 2017 was a prime example of this. While Bitcoin’s market dominance was above 90% at the beginning of the bull run, it soon saw a dramatic drop to below 60% that it still hasn’t recovered from.
Major altcoins such as XRP and Litecoin saw price gains that were astronomical. Like all cryptocurrencies though, the key to these massive gains is to ensure that you sell whilst you are still in profit before they come crashing down (as they typically do).
Pump-and-dump schemes
Altcoin rallies can be caused by nefarious actions as well. While this is more specific to a single altcoin rather than the whole market, the issue of pump-and-dump schemes still hasn’t been resolved.
They are usually coordinated between a small group of people through social messaging applications such as Telegram. They accumulate coins at a small price, help pump the price up dramatically, and then dump the coins shortly thereafter for profit, causing price to crash. Such schemes have been taking place for many years, mainly with illiquid altcoins as they are easier to manipulate.
Pump and dumps are similar to altcoin rallies but on a much shorter timescale. Instead of months, these events usually take place over days or weeks.
Conferences, announcements, and new releases
Nothing excites fans of altcoins like new releases or announcements. As these announcements build FOMO, people rush to buy up more coins in the hope that they can make a profit.
No leader of a cryptocurrency is as much of a hype-man as Tron’s Justin Sun. Here is a chap who will make an announcement that he will soon announce an announcement. No one does it better. Through his marketing tactics, he is able to keep the excitement buzzing around Tron to ensure his cryptocurrency doesn’t lose value.
As Coin Rivet reported, Sun has recently paid over $4 million to have lunch with the extremely wealthy (and extremely negative on cryptocurrencies) Warren Buffett. In pulling this stunt, Sun has ensured that Tron is once more receiving press attention, highlighting his cryptocurrency to the masses.
Conclusion
Ultimately, an altcoin rally depends a lot on the price of Bitcoin. As we saw recently, positive price movement for Bitcoin ends up spilling over into altcoins. Although history has shown that altcoin rallies are likely as the Bitcoin price rises, this does not necessarily make it a guarantee.
While there are other catalysts that play a role in altcoin rallies such as conferences and new announcements, the money is made when new investors and new money comes into the industry.
Via coinrivet.com
