In the realm of cryptocurrencies, filled with unknowns and possibilities, the altcoin market is undoubtedly one of the most eye-catching focal points. As a significant part of the cryptocurrency market, altcoins are renowned for their extreme volatility, a characteristic that brings both immense investment opportunities and undeniable risks. Compared to mainstream cryptocurrencies like Bitcoin and Ethereum, the price movements in the altcoin market are often more dramatic, and behind these intense fluctuations, liquidity plays a crucial role. The abundance or scarcity of liquidity directly determines the market's trading activity, price stability, and investor confidence. This article will analyze from both a macro perspective and the altcoin market itself to attempt to answer the question: "Why is there no altcoin season?"
Looking Back at the Altcoin Bull Market
In early 2020, the outbreak of the COVID-19 pandemic dealt a massive blow to the global economy. To counter the economic recession triggered by the pandemic, governments and central banks worldwide swiftly implemented a series of stimulus measures, including large-scale monetary easing policies and fiscal stimulus plans. These policies significantly increased liquidity in global markets, providing ample financial support for the cryptocurrency market. In the United States, the Federal Reserve slashed the federal funds rate to near zero in March 2020 and launched a massive asset purchase program (quantitative easing), injecting trillions of dollars into the market. Major central banks around the world, such as the European Central Bank and the Bank of Japan, followed suit with similar policies, leading to a global liquidity glut. This loose monetary environment prompted investors to seek high-risk, high-reward investment opportunities, and the cryptocurrency market, particularly the more volatile altcoin market, became a popular destination for capital inflows.
Moreover, during the pandemic, global supply chains were disrupted, and inflationary pressures rose, leading to declining return expectations for traditional assets like stocks and bonds, further boosting demand for alternative assets. Cryptocurrencies, as an emerging asset class with low correlation to traditional financial markets, attracted a large amount of capital seeking diversified investments. In the second half of 2020, as vaccines were rolled out and signs of economic recovery emerged, market confidence gradually strengthened, and investors' preference for risk assets increased, greatly benefiting the altcoin market.
The increase in macro liquidity not only provided financial support but also shaped market sentiment. In a low-interest-rate environment, the return on holding cash was nearly zero, prompting investors to channel funds into areas with high growth potential. The global low-interest-rate environment provided a liquidity foundation for the cryptocurrency market's surge, as low-interest policies led to declining returns in traditional financial markets, driving investors to chase higher-yield assets, with cryptocurrencies becoming a popular choice due to their high volatility and potential for high returns.
Additionally, unlike the 2017 bull market, the 2021 cryptocurrency bull market featured a more diverse narrative, from DeFi to NFTs and the metaverse. These diverse narratives not only attracted significant attention from investors and developers but also became the core drivers of the altcoin market's prosperity. In the summer of 2020, DeFi began to gain prominence by offering decentralized financial services such as lending, trading, and insurance, attracting a large number of users and capital. DeFi projects like Uniswap, Compound, and Aave quickly amassed enormous total value locked (TVL) through innovative financial models and incentive mechanisms like liquidity mining. The token prices of these projects skyrocketed in a short period, driving the overall enthusiasm in the altcoin market. For example, Uniswap's governance token UNI, launched in September 2020, quickly became a market focal point, with its price soaring and sparking investor interest in DeFi tokens. This period was known as the DeFi Summer, and the rise of DeFi not only injected new vitality into the market but also demonstrated the practical application potential of blockchain technology in the financial sector. Investors gradually realized that cryptocurrencies were not just speculative tools but could also be a crucial part of the future financial system. In early 2021, NFTs (non-fungible tokens) began to receive widespread attention. By combining digital assets such as art, music, and gaming items with blockchain technology, NFTs created entirely new investment and collection methods, further propelling market prosperity. The success of NFT projects like CryptoPunks and NBA Top Shot not only attracted participation from celebrities in the art and sports worlds but also sparked a frenzy among ordinary investors for NFTs. The explosion of the NFT market brought new growth points to the altcoin market. Many NFT projects issued tokens on public chains like Ethereum, and the strong performance of these tokens in the market further boosted the overall market capitalization of altcoins.
The altcoin bull market in cryptocurrencies from 2020 to 2021 was the result of the combined effects of global macro liquidity easing and innovative narratives within the market. The accommodative policies of global central banks provided ample financial support for the market, while the rise of emerging narratives like DeFi and NFTs injected new vitality and growth points. The participation of institutional investors further enhanced the market's maturity and stability, driving the prosperity of altcoins.
Why Has the Altcoin Market Underperformed in This Cycle?
In the second half of 2021, major global central banks, such as the Federal Reserve, gradually tightened monetary policy, leading to capital outflows from high-risk assets, and the cryptocurrency market was not spared. The altcoin market, due to its high volatility and speculative nature, was particularly hard hit. At the same time, increasing uncertainty in regulatory policies began to shake investor confidence in cryptocurrencies, and market sentiment shifted from extreme optimism to cautious observation. Capital flowed towards Bitcoin or traditional financial markets, further depleting liquidity in the altcoin market.
By the end of 2023, global inflation gradually eased, and market expectations for the end of central banks' rate-hiking cycles rose, leading to a recovery in investor confidence. Meanwhile, the cryptocurrency market underwent a round of consolidation, with low-quality projects being eliminated and resources concentrating on high-quality assets, laying the foundation for a subsequent recovery. Against this backdrop of gradual market stabilization, news that Bitcoin ETFs were about to be approved became a key factor in reigniting market enthusiasm. As an investment vehicle that could integrate Bitcoin into the traditional financial system, the launch of ETFs was seen as a significant step towards mainstream adoption of the cryptocurrency market. It not only provided a compliant entry point for institutional investors but also led to a sharp rise in Bitcoin's price in a short period, driving other cryptocurrencies higher.
During this period, the most standout asset class in the altcoin market was MEME coins, with many experiencing tens or even hundreds of times in gains. However, the overall performance of the altcoin market did not match the brilliance of 2021. Leveraging the viral spread of meme culture and community-driven efforts to attract retail investors, speculative psychology and market sentiment formed a positive feedback loop, with FOMO (fear of missing out) emotions exacerbating the gains. Nevertheless, the overall altcoin market failed to replicate the glory of 2021, showing signs of fatigue and limitations, with increased volatility but insufficient liquidity. Non-MEME assets such as DeFi, Layer 1/2, and NFTs performed lacklusterly due to a lack of capital inflows and new growth points. Market capital was concentrated in a few hotspots rather than experiencing widespread prosperity, influenced by global economic tightening and regulatory uncertainty, which shook investor confidence and led to a preference for short-term speculation over long-term holding. Additionally, most MEME coins exhibited characteristics of Ponzi schemes, lacking long-term value, and as of now, most have fallen 90% from their peaks.
So, why has the altcoin market underperformed in this bull cycle, failing to produce the same wealth effect as in 2021? The reasons can perhaps be analyzed from multiple perspectives.
The most critical factor is that liquidity worldwide remains insufficient, and the impact of global liquidity conditions on the cryptocurrency altcoin market cannot be ignored. In 2021, global central banks injected massive liquidity through large-scale quantitative easing policies, driving altcoin prices to soar, and the market exhibited a "flood irrigation" prosperity. However, by 2024, the situation has changed significantly. Although we are currently in a rate-cutting cycle, persistent inflationary pressures have made central banks more cautious in policymaking, and the speed and scale of liquidity release are far less than in previous years. At the same time, high global debt levels have constrained fiscal policy space, with government spending becoming more conservative, unable to inject vitality into the market through large-scale stimulus. Furthermore, slowing economic growth has weakened capital demand, with businesses and consumers behaving cautiously, and rising geopolitical risks and economic uncertainties have further depressed investors' risk appetite, leading to more capital flowing into safe-haven assets rather than the high-risk altcoin market. This liquidity tightening has resulted in reduced capital inflows into the altcoin market, decreased trading activity, and increased price volatility.
Secondly, the transmission path of liquidity in financial markets exhibits a clear hierarchy, deeply influenced by investors' risk preferences. Liquidity, as the lifeblood of market capital, often flows from low-risk assets gradually to high-risk assets, similar to a risk gradient. For example, capital may first flow into low-risk assets like government bonds and gold, then shift to medium-risk assets like stocks when market sentiment is optimistic, and finally enter high-risk areas when liquidity is extremely abundant. The cryptocurrency altcoin market, as a highly volatile and speculative asset class, is typically seen as the last link in this transmission chain. Only when market liquidity is extremely abundant and investors' risk tolerance reaches its peak will capital flow into this area on a large scale, driving rapid price increases in altcoins. Conversely, during liquidity tightening or when market risk aversion rises, the altcoin market is often the first to be impacted, with capital outflows accelerating and price volatility intensifying. Historical data shows that during the 2021 bull market, global liquidity was abundant, and the altcoin market experienced unprecedented prosperity, with many tokens achieving tens or even hundreds of times in gains. However, as liquidity tightened in 2022, the altcoin market quickly fell into a slump, with prices retracing significantly, highlighting its vulnerability in the liquidity transmission chain. This phenomenon reflects the close relationship between risk appetite and liquidity: when investors chase high returns, altcoins become the "adventure land" for capital; when risk aversion dominates, they become the first to be abandoned. Therefore, under current liquidity conditions, it is almost impossible for the altcoin market to experience a systemic bull market.
Conclusion
In the cryptocurrency market, altcoins, as a highly volatile and high-risk asset class, have their performance closely tied to the abundance of global liquidity. Looking back at the 2020-2021 bull market, the liquidity glut brought by large-scale quantitative easing policies from global central banks provided ample financial support for the altcoin market, coupled with the push from emerging narratives like DeFi and NFTs, leading to unprecedented prosperity. However, entering 2024, global liquidity tightening has significantly weakened this foundation. Inflationary pressures, high debt levels, and slowing economic growth have forced central banks to be more cautious in cutting rates, with limited liquidity release and constrained fiscal policy space, resulting in overall tight market capital conditions. This has led to a decline in investors' risk appetite, with more capital flowing into safe-haven assets like government bonds and gold, while altcoins, as high-risk assets, face hindered capital inflows, reduced trading activity, and increased price volatility. Although the short-term craze for MEME assets has injected some vitality into the market, their speculative nature and lack of fundamental support limit overall prosperity and make it difficult to drive a systemic bull market. As the last link in the risk gradient, the altcoin market can only thrive when liquidity is extremely abundant and investors' risk tolerance is high, conditions that are clearly not present in the current environment. Looking ahead, the development of the altcoin market depends on improvements in global liquidity, clarification of regulatory policies, and internal market innovation. Investors need to be wary of its high-risk characteristics and formulate strategies in conjunction with the macro environment, while market participants should promote value creation in projects and reduce speculative behavior to foster the healthy development of the industry.
