We have been closely monitoring the key support areas of Bitcoin (BTC), planning either to exit the market (anticipating further declines) or to redeploy capital into higher-risk assets if cash flow permits, in anticipation of a possible "altcoin season" or market climax later this year.

From the dramatic shifts in the Trump administration's tariff policies to the looming recession risks hinted at in the soft data of the US economy, global markets have been fluctuating under the influence of liquidity and sentiment. Meanwhile, Bitcoin appears to be brewing new highs, and the entire market seems to be sensing the arrival of an "altcoin season."

So, what is the current state of the entire market, and is Bitcoin's dominance rate likely to peak? Is the "altcoin season" really coming? This article will take you through the data and indicators to see the full picture.

We have been closely monitoring the key support areas of Bitcoin (BTC), planning either to exit the market (anticipating further declines) or to redeploy capital into higher-risk assets if cash flow permits, in anticipation of a possible "altcoin season" or market climax later this year.

Next, we will discuss how we manage risk in the context of improved tariffs and market sentiment.

01 Macroeconomics

Tariffs

Initially, we believed that the Trump administration would take a tough stance against China while negotiating with other countries. This view seemed correct when Trump raised tariffs to 145%. Of course, this actually created unsustainable trade barriers between the world's two largest economies.

Now, we see that tariffs on China have been capped at 30%, with a 90-day suspension. The market reacted positively to this news. However, it is important to understand that the global effective tariff rate remains at 17.8%, compared to just 2.5% when Trump took office.

Looking Ahead

We cannot predict the short-term trajectory of tariffs; attempting to do so would be futile. However, it can be said that traders who bought when Trump said "buy" and sold when he said "sell" over the past few months may have made a fortune.

Long-term readers know that this is not our investment style. We look forward to returning to a long-term mindset. At the same time, in the later stages of the cycle, short-term perspectives also have their necessity.

From a long-term perspective, we try to focus on the big picture:

• Tariff rates will not return to 2.5%.

• Tariffs are primarily aimed at rebalancing trade with China (a power struggle), while also catering to Trump's populist base (bringing manufacturing back to the US). A two-for-one deal.

Recession

Before the 90-day suspension of tariffs on China, soft data (surveys) indicated an increased risk of recession:

• The ISM Manufacturing Index fell to 48.7 in April (indicating a contraction in the business cycle), although the services sector rose to 51.7 (expansion).

• The University of Michigan Consumer Confidence Index was 52.2 in April, well below the long-term average of 85 (71 during the COVID-19 peak).

• One-year inflation expectations rose to 6.5% in April (according to the University of Michigan survey).

• The March Challenger report showed that layoffs reached the highest level since the Great Recession, with a slight decline in April but still 63% higher than last year.

• Data from the Port of Los Angeles indicated a 30% decrease in cargo from China, with expected impacts on retail in May/June.

Overall, Polymarket set the probability of a recession at 66% on May 1 (currently at 40%).

Is the Altcoin Season Already on the Way?

Data Source: Polymarket

We believe that soft data will eventually be reflected in hard data (actual data) — currently, hard data still shows a strong economy.

Now, with the 90-day tariff suspension in place, we believe that short-term recession concerns have been alleviated.

The question is, how long can this "wall of worry" be climbed until another wave of negative news suppresses expectations.

This could happen tomorrow, and no one knows, making the current situation more like a trader's market.

Nevertheless, it appears that there may be a window of rising risk appetite in the short term, and capital allocators may need to chase the market.

02 Cryptocurrency Market

The rise in risk appetite is most evident in the cryptocurrency market, which is the asset class most sensitive to liquidity conditions.

The cryptocurrency market seems to sense the following trends:

• US government fiscal spending has not decreased and remains above 7% of GDP.

• Government and corporate debt will face a refinancing wave of $3.5-4 trillion in the third and fourth quarters.

• Tax cuts, deregulation, and adjustments to the Supplementary Leverage Ratio (SLR) (which may increase banking leverage/liquidity) may occur later this year.

• Inflation is declining (this week's CPI and PPI reports show a slowdown in inflation), which may give the green light for the Federal Reserve to cut interest rates.

• Overall, liquidity conditions are favorable because the Federal Reserve may need to purchase part of the upcoming refinancing and new debt issuance.

These factors increase the likelihood of an "altcoin season," even though the Federal Reserve is currently holding steady.

Since the fourth quarter of last year, we have observed for the first time a sustained rise in altcoins and meme coins. At the same time, Bitcoin's dominance rate appears to have peaked:

Is the Altcoin Season Already on the Way?

Data Source: Glassnode, The DeFi Report

Altcoin Season

If we truly enter an "altcoin season," the Bitcoin dominance rate in the above chart still has a long way to decline. This means that (some) altcoins will outperform.

But how do we confirm the "altcoin season"? Here are the key factors:

• The final year of the cycle.

• Bitcoin's dominance rate starts at 65-70%.

• A shift from Quantitative Tightening (QT) to Quantitative Easing (QE).

• An increase in the ETH/BTC ratio.

• Rising retail investor interest and a "meme" revival.

Currently, we are in the early stages of this process. The ETH/BTC ratio is still at 0.024, and the ETH/USD price is 46% lower than its all-time high. The Federal Reserve is still implementing QT.

Nevertheless, last week's 35% increase in ETH reminds us of the 68% increase from January 1 to January 7, 2021 (from $729 to $1,224).

At that time, the ETH/BTC ratio rose from 0.03 to 0.07 four months later, and ETH/USD increased by 370%.

This sparked a boom in altcoins, NFTs, "metaverse" tokens, and alternative Layer 1s. From January to May 2021, there was hardly any correction. The market then plunged in mid-July (ETH fell from $4,000 to $1,800), followed by a new all-time high in November.

Some altcoins (such as Terra Luna) continued to rise after BTC and ETH peaked until the entire market crashed.

This was the situation in the last cycle.

So, how do we deal with the current situation?

03 Portfolio Management

We are satisfied with locking in the profits of our long-term positions in December/January last year. Since then, we have been monitoring the market, looking for signals: either the market will collapse into a bear market or rebound to form another climax.

We are now inclined towards the latter.

But this does not mean we are going all-in.

As many readers know, our style is to wait for the "fat pitch" (high certainty opportunities). We do not believe the current situation is a "fat pitch," but we also believe there is upside risk.

Here is our strategy:

• We are not interested in BTC at the current price level.

• Instead, we are reallocating a small portion of our profits to higher-risk assets.

• Historically, assets that perform well at the end of the cycle are those that performed well early on + emerging/shiny new things. Tokens with strong communities/narratives and low circulating supply may see the largest gains.

• DeFi projects with strong fundamentals may also perform well, and we expect top "blue-chip" meme coins to outperform.

04 Risks

I want to make it clear that we are not going all-in at the moment. We simply hope to capture some of the upside if the market rebounds strongly.

Risks to consider include:

• Bitcoin needs to break its all-time high. If this does not happen, our views may be irrelevant.

• Summer is usually a period of volatility/consolidation. The current sentiment is somewhat extreme, and there may be further declines similar to last year.

• Bond market. We believe that long-term yields will eventually rise. Stocks (and cryptocurrencies) may rise during these periods, but valuations are ultimately determined by DCF calculations. If this happens, stocks (and cryptocurrencies) will eventually correct.

• Stablecoin legislation did not pass the Senate last week (Democrats are still blocking cryptocurrencies). This is important; the crypto market may be underestimating its impact. If this legislation does not pass, a larger crypto bill may also be blocked, becoming a headwind for the asset class.

05 Summary

The "altcoin season" refers to a situation where more than 50% of new inflows into the crypto market go to non-BTC assets. This does not mean that all altcoins will outperform.

Asset selection and timing are crucial.

Please understand that in addition to market risks, there are many other risks. Yesterday, we learned that Coinbase user data has recently been exploited. As prices rise, hacker attacks, hidden leverage, and social engineering scams pose additional risks for crypto investors.

We believe that there will be opportunities to buy BTC and other blue-chip assets at a discount in the near future. But we also want to have some fun and try to capture the remaining upside in the current cycle.