Author: CryptoAmsterdam

Compiled by: TechFlow

Is the statement "No Quantitative Easing (QE), no Altseason" correct?

Recently, my comment section has been filled with similar views:

• "We need QE to usher in Altseason."

• "Without QE, Altseason will never start."

Let's analyze this.

This is not usually my main area of research, but since everyone is discussing QE, I'll do a simple analysis.

(Note: I am not an expert in this field, and if there are any errors, please point them out. To simplify the discussion, we will only look at the charts and not make too many guesses. Please refer to them with caution.)

1. What are QE and QT?

QE (Quantitative Easing):

• The central bank injects liquidity into the market by creating new money

• The specific operation is to purchase assets to increase market liquidity

• Increased liquidity = Beneficial for risk assets (such as cryptocurrencies)

QT (Quantitative Tightening):

• The central bank reduces the money supply in the market

• Methods include selling assets or letting assets mature, thereby withdrawing liquidity

• Reduced liquidity = Unfavorable for risk assets

If we overlay the total market capitalization chart of the Altcoin market and the Bitcoin Dominance chart, and mark the time periods of QE (favorable to the market) and QT (unfavorable to the market), we will find that these two statements are not valid.

Even without QE, the cryptocurrency market has experienced significant rallies, bull markets, and Altseasons.

In fact, QE has only coincided with a bull market once, and that was in 2021.

Chart analysis summary:

• The arrival of Altseason does not depend on QE.

• During the QT period, the total market capitalization of the Altcoin market soared from $400 billion to $1.7 trillion.

• Although QE can have a promotional effect on the market, it is not a necessary condition - other factors may also trigger market growth, such as the launch of ETFs, government policy support, SBR (possibly referring to a stablecoin reserve mechanism), or the increase in Bitcoin's value.

• Theoretically, the cessation of QT would be beneficial to the market, but the market still achieved growth during the QT period, indicating that QT is not a decisive factor in the market's performance.

2. What is Altseason?

In the cryptocurrency market, there are usually two main stages:

• Bitcoin Season

• Altcoin Season

Bitcoin Season:

• The characteristic of Bitcoin Season is that Bitcoin Dominance (the market capitalization of Bitcoin as a percentage of the entire cryptocurrency market) rises. This is because funds flow from Altcoins to Bitcoin, causing the overall performance of Altcoins to deteriorate compared to Bitcoin.

• New funds mainly flow into Bitcoin, causing the market share of Altcoins to decline.

Altseason:

• The characteristic of Altseason is that Bitcoin Dominance declines, as funds flow from Bitcoin to Altcoins.

• The influx of new funds drives up the market share of Altcoins, and the total market capitalization of Altcoins will also surge rapidly.

Based on historical data, the market is in Bitcoin Season most of the time, and the performance of Altcoins is usually inferior to Bitcoin. Here are some typical Bitcoin Season stages:

• Bitcoin is in a bear market? This is Bitcoin Season.

• Bitcoin is bouncing back from the bottom? Still Bitcoin Season.

• Bitcoin is starting to rise? Bitcoin Season.

• Bitcoin reaches the high of the previous cycle? Bitcoin Season.

• Bitcoin breaks a new high? Still Bitcoin Season.

The appearance of Altseason usually follows a certain pattern: It often occurs after Bitcoin first breaks a new high and enters a consolidation phase. Subsequently, when Bitcoin rises again, Altseason will truly arrive, and Bitcoin Dominance will begin to decline, ushering in an explosion in the Altcoin market.

3. What factors can trigger Altseason?

Altseason is usually triggered by the start of a Bitcoin bull market. (Note that this does not depend on Quantitative Easing QE; we are currently in the Quantitative Tightening QT phase. Other possible triggers include Bitcoin's value and cycle, the Stablecoin Reserve Mechanism (SBR), and the launch of Bitcoin ETFs.)

The first step in the flow of funds is usually to flow into Bitcoin and major Altcoins.

The following results are:

• Media hype attracts the attention of retail investors, who may then start buying Altcoins.

• At the same time, investors who have made profits in Bitcoin may transfer their funds to the Altcoin market in search of higher returns.

Based on historical data, this phenomenon usually occurs during the stage when Bitcoin breaks a new high for the second time. This pattern can be observed in the previous charts.

The flow of funds in the cryptocurrency market has a relatively clear path:

Bitcoin → Major Altcoins → High-cap tokens → Mid-cap tokens → Low-cap tokens

For example, on January 18, 2021, Bitcoin was in a consolidation phase and attempting to break a new high (as shown by the red arrow in the chart), while the Total 3 (the Altcoin market capitalization indicator) was still at an intermediate level (as shown by the red arrow in the chart).

From this, we can see that Bitcoin is usually the starting point for the flow of funds, followed by the total market capitalization of major Altcoins (Total 3), and finally other tokens (including high-cap and mid-cap tokens).

The trigger for Altseason does not depend on Quantitative Easing QE. (Of course, QE can indeed provide help to the market.)

The key is that a large amount of funds first flow into Bitcoin and major Altcoins, and then the greed sentiment in the market will drive funds to flow further into other Altcoins.

This is the triggering mechanism of Altseason. So far, whether it's QE, QT, or other external factors, we are already on the right track. The entire cryptocurrency market (mainly composed of Bitcoin and some major Altcoins, as Altseason has not truly arrived yet) has grown from $700 billion to nearly $4 trillion.