Coinbase states that Bitcoin's dominance has fallen to its lowest point in six months, while the market capitalization of altcoins has risen by 50% since July, laying the groundwork for a potential altcoin boom in September.
Coinbase states that altcoins have seen significant growth recently, and the state of the cryptocurrency market suggests a potential shift towards cryptocurrencies outside of Bitcoin may occur soon.
David Duong, Head of Global Research at Coinbase Institutional, wrote in Thursday's monthly outlook report: 'We believe that the current market conditions suggest that as September approaches, altcoin season may fully shift.'
Coinbase analysts, along with an increasing number of traders and market observers, predict that altcoin season is on the horizon.
The company defines altcoin season as at least 75% of the top 50 altcoins by market capitalization outperforming Bitcoin (BTC) over the past 90 days.
Duong added that 'a significant amount of retail capital is on the sidelines in money market funds,' and the Federal Reserve's easing policy may 'unleash more retail participation potential in the medium term.'
The U.S. Consumer Price Index (CPI) for July, released this week, shows that the inflation rate year-on-year remains at 2.7%, which raises the likelihood of a Federal Reserve rate cut in September to 92% in the futures market.
A lower interest rate environment may attract new capital into the market and could act as a catalyst for high-risk assets like altcoins.
Bitcoin's dominance is on the decline.
Another factor influencing the arrival of altseason is the decline of Bitcoin's dominance or the share of the total cryptocurrency market capitalization.
Bitcoin's market dominance has dropped by about 10% from over 65% in May to 59% in August, Duong wrote, 'This indicates that capital is entering the early stage of altcoin rotation.'
According to TradingView data, Bitcoin's dominance is currently at 59.5%, approximately the lowest level since the end of January.
Cryptocurrency day trader Ito Shimotsuma stated on Thursday: 'Bitcoin's dominance has just formed its first monthly bearish crossover since January 2021.' 'At that time, altcoins only rallied for four months,' he added, 'and a similar situation this time would lead to continued Bitcoin price increases until December 2025.'
The altcoin quarterly index is on the rise.
Duong observed that the altcoin season index has also been climbing, but it remains well below the historical threshold of 75 that defines altcoin season, despite the market capitalization of altcoins having risen over 50% since early July.
CoinMarketCap's altcoin season index currently stands at 44, up from 25 in July. The Blockchain Center's altcoin season index is neutral at 53, while CryptoRank's altcoin season index is at 50.
Institutional interest in ETH is driving the altcoin boom.
Duong noted that the current momentum is driven by narratives around digital asset custody and stablecoins, with the disparity in the altcoin quarterly index and total altcoin market capitalization 'reflecting growing institutional interest in Ethereum,' summarizing:
'As the market capitalization of altcoins rises and the altcoin season index shows early positive signals, we believe that as we enter September, altcoin season may become more mature, and the conditions are forming.'
Joanna Liang, founding partner of Singapore-based venture capital firm Jsquare, told Cointelegraph: 'For altcoin season to take root, three key conditions are necessary: a supportive macro backdrop, a decline in BTC dominance, and a strong new narrative.'
'Previous cycles were driven by clear catalysts: ICOs in 2017-2018, Layer-1 in 2018-2019, and DeFi/NFT in 2021-2022,' she said, adding, 'In this cycle, the market is still waiting for a compelling signal from the primary market to attract a large influx of new capital and truly ignite the altcoin boom.'
