The Crypto Market Is Doing Something It Typically Only Does 1 Time Per Year -- and History Is Very Clear What Happens Next

For crypto investors, there's only one season better than the winter holidays, and that's "altcoin season." During this time of the year, lesser-known cryptocurrencies with smaller market caps (i.e., altcoins) can absolutely skyrocket in value.

Right now, all indicators are flashing green for the arrival of altcoin season. So let's take a closer look at how altcoin season is defined, what it means for crypto investors, and which cryptocurrencies might stand to benefit the most.

What is altcoin season?

For most of the year, cryptocurrencies tend to follow the direction of Bitcoin (CRYPTO: BTC), which is by far the largest crypto, accounting for a whopping 54% of the total market cap of the crypto market. If Bitcoin trends up, then most cryptocurrencies will also trend up. And if Bitcoin trends down, then most cryptocurrencies will also trend down.

You'd expect the market to follow the lead of the biggest, most influential cryptocurrency. That's why market watchers tend to focus on Bitcoin anytime they are predicting the future of the crypto market.

But there are periods during the year -- known as "Bitcoin season" and "altcoin season" -- when there is a clear change in this dynamic.

During Bitcoin season, investors pile into Bitcoin, and Bitcoin significantly outperforms other cryptocurrencies. During altcoin season, the opposite happens. Investors rotate out of Bitcoin, and pile into riskier, more speculative altcoins. As this money flows into altcoins, some of them can skyrocket in value.

Has altcoin season finally arrived?

Luckily, there are a few indicators for the crypto market that investors can track to determine if altcoin season has arrived. But just keep in mind: Unlike the winter holiday season, there is no official kickoff date for altcoin season. Sometimes the key indicators are flashing conflicting signals. Other times, there is disagreement among crypto investors about which indicator is the most important.

Image source: Getty Images.

So that's what is so exciting right now for crypto investors -- every key indicator appears to be showing the same thing. Yes, altcoin season has arrived.

The one indicator that has everyone's attention right now is the Altcoin Season Index. This is very easy to calculate -- you take the top 100 cryptocurrencies (excluding stablecoins, which do not vary in value), and see how many of them have outperformed Bitcoin over the past 90 days. If at least 75 of these top 100 cryptocurrencies have outperformed Bitcoin, then it's altcoin season.

Right now, the Altcoin Season Index created by CoinMarketCap has a value of 82. And it has absolutely skyrocketed in value since the U.S. presidential election in November. In the span of a month, the index soared from 33 to 87 before retreating to its current level.

The arrival of this year's altcoin season caught many investors by surprise. After all, everyone has been so fixated on Bitcoin's ascent to the $100,000 price level that they completely ignored what was happening to smaller, lesser-known cryptocurrencies.

Which altcoins should you be buying?

As the data from CoinMarketCap shows, the performance of these smaller altcoins over the past 90 days has been mind-boggling. Hedera (CRYPTO: HBAR) is up 481%. Stellar (CRYPTO: XLM) is up 415%. Sui (CRYPTO: SUI) is up 383%. Dogecoin (CRYPTO: DOGE) is up 346%. And XRP (CRYPTO: XRP) is up 329%. This is exactly what you would expect to happen during altcoin season.

By way of comparison, Bitcoin is "only" up 79% during this same time period. Ethereum (CRYPTO: ETH), the second-biggest cryptocurrency, is "only" up 67%.

So you can see why the arrival of altcoin season is so exciting for crypto investors. While many investors are trying to buy as much Bitcoin or Ethereum as they possibly can, others are rotating their money into altcoins, where the returns could be significantly higher.

That raises an interesting question: Which altcoins should you be buying right now? The conventional wisdom is that you should stick to the more established, higher-market cap names. And you should definitely avoid meme coins, or any other crypto that trades purely based on hype, speculation, and momentum.

With that as a guide, Sui looks particularly interesting right now. Even before the arrival of altcoin season, this cryptocurrency was turning the heads of investors. It's a highly touted Ethereum competitor that's faster, cheaper, and more efficient to use. Right now, it ranks as the 17th-largest cryptocurrency by market cap, and is starting to attract the attention of institutional investors.

Be wary of timing the market

Of course, it's important to point out that the arrival of altcoin season should not become an excuse to time the market. Remember: The market is very good at head fakes, misdirection, and emotional manipulation. And, as we've seen this year, the Altcoin Season Index can shift in value quite dramatically within a very short time period.

The last thing that you want to do right now is invest in a tiny, speculative cryptocurrency that you've never heard of before, only to find out that altcoin season is suddenly over. Don't try to time the market. Instead, only invest in an altcoin if you believe in its long-run potential.

That being said, even if you don't believe in altcoin season, it's definitely worth considering which cryptocurrencies might have significant upside potential as we head into 2025. Now might be the time to find the hidden crypto gem with the ability to outperform Bitcoin next year.

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Dominic Basulto has positions in Bitcoin, Ethereum, and SUI. The Motley Fool has positions in and recommends Bitcoin, Ethereum, SUI, and XRP. The Motley Fool recommends Hedera Hashgraph. The Motley Fool has a disclosure policy.