Altcoins just suffered their worst sell-off in years, with over $460 billion erased in days. Will liquidity rotate back, or is the dream of another altseason fading for good?
Altcoins under pressure
On Feb. 3, global financial markets suffered a sharp flash crash after Donald Trump imposed tariffs on China, Canada, and Mexico, triggering a sell-off across global markets. Stocks, commodities, and cryptocurrencies reacted immediately, with altcoins taking the biggest hit.
At the end of January, the total altcoin market cap stood at $1.46 trillion, but by Feb. 3, it had plunged to $1 trillion,marking a 31.5% decline and wiping out $460 billion in market value.
Since then, the market has shown some signs of recovery, climbing to $1.22 trillion as of this writing on Feb. 5. However, it remains nearly 16% below its January levels and 28% short of its all-time high of $1.71 trillion from November 2021.
The overall sentiment in the altcoin market remains weak. One key indicator for measuring whether altcoins are outperforming Bitcoin is the CMC Altcoin Season Index, which tracks the performance of the top 100 altcoins relative to Bitcoin over the past 90 days.
As of Feb. 5, the index sits at 36, a sharp drop from 87 in December 2024, when altcoins surged following Trump’s election victory.
A reading above 50 suggests a mild altcoin rally, while above 75 signals a full-fledged altcoin season. At its current level, the index indicates that Bitcoin remains the dominant force in the market, with altcoins struggling to gain traction.
Price performance among major altcoins also reflects this sentiment. Ethereum (ETH) has declined over 18% year to date, currently trading at around $2,800. Solana (SOL) has seen modest growth, rising 5% since the start of the year to reach $205.
Meanwhile, Ripple (XRP) has been one of the best-performing large-cap altcoins, gaining 21% year to date and surging 360% over the past three months.
With institutional interest in Bitcoin continuing to rise, the question remains: Will altcoins see a strong rally in 2025, or will Bitcoin’s dominance persist? Let’s find out.
Bitcoin’s growing dominance
Bitcoin’s growing dominance in the market has created a bottleneck for altcoins, preventing capital from flowing into them as it did in previous cycles.
As of Feb. 5, Bitcoin accounts for 61.5% of the total crypto market cap, its highest level since early 2021. This means that for every dollar invested in crypto, over 61 cents go into Bitcoin, leaving around 39 cents for the thousands of other coins combined.
Just two months ago, in December 2024, when altcoins found some footing, this number was 54%, highlighting how quickly Bitcoin has regained its hold over the market.
To understand why this is happening, it helps to look at historical trends. Bitcoin dominance tends to rise during uncertain times. The collapse of FTX (FTT) in November 2022 is a prime example.
When trust in the broader crypto market weakened, Bitcoin’s dominance stood at just 40%. In the following months, however, investors increasingly moved their capital into Bitcoin, pushing its market share past 64% recently.
A similar pattern played out between 2018 and early 2021. During that period, Bitcoin’s dominance climbed from 35% to 63% before gradually declining as altcoins began outperforming.
But this time, there is a key difference — institutions. Since the approval of spot Bitcoin ETFs in January 2024, Bitcoin has been absorbing an unprecedented amount of liquidity.
As of this writing, spot BTC ETFs hold over $120 billion in assets under management, with large financial institutions like BlackRock, Fidelity, and Grayscale leading the charge.
At the same time, discussions about a potential strategic Bitcoin reserve in the U.S. have been gaining traction. If governments start viewing Bitcoin as a hedge, the capital rotation cycle that previously fueled altcoin rallies could take much longer to materialize.
Unlike previous cycles, where capital eventually rotated into altcoins, institutions are now accumulating Bitcoin, keeping liquidity concentrated and limiting capital flow into altcoins.
What needs to change for an altcoin rally?
Historically, capital in crypto markets has moved in phases. Bitcoin absorbs liquidity first, leading market rallies. Once BTC stabilizes, funds rotate into altcoins, triggering an altcoin season.
This pattern was evident in 2017 when Bitcoin’s dominance peaked at 70%, paving the way for ETH and XRP to surge in early 2018. A similar trend played out in 2021 when Bitcoin reached $69,000 before altcoins gained traction.
Currently, Bitcoin’s dominance remains strong, forming higher highs and higher lows—signs that liquidity is still concentrated in BTC. For altcoins to gain momentum, Bitcoin needs a prolonged stabilization period, allowing capital to rotate.
A drop in Bitcoin dominance below key support levels would indicate investors shifting funds. Additionally, catalysts such as Ethereum upgrades, regulatory clarity, or broader adoption could accelerate this transition.
Another factor slowing capital rotation is the growing presence of institutional investors. Unlike retail traders, institutions tend to make calculated, long-term investments, meaning they are less likely to chase short-term trends in altcoins as seen in past cycles.
However, if Bitcoin dominance does start to decline, the rotation process will likely follow the established sequence: large-cap altcoins move first, followed by mid-caps, and then smaller, speculative projects. For now, the market remains in a holding pattern.
How on-chain speculation is disrupting the altcoin market
The way speculative capital moves in the crypto market has changed, and that shift could be one of the biggest reasons why a traditional altcoin season has yet to materialize.
Analyst Miles Deutscher highlights the role of Pump.fun, a platform he says has “directly correlated to the destruction of the altcoin market vs BTC.”
He explains that in previous cycles, speculative capital would have flowed into top 200 altcoins on centralized exchanges. Instead, much of that liquidity is now flooding into on-chain, low-cap tokens, many of which lack proper liquidity.
This new trend has created an uneven market dynamic. “The early birds & insiders got insanely rich from this,” Deutscher notes, but he adds that most retail investors who entered late lost money — just as they did in previous altcoin cycles.
However, unlike 2022, when retail losses were mostly limited to relatively liquid altcoins listed on centralized exchanges, this time, capital is locked in illiquid meme tokens, many of which have already retraced 70–80%.
According to Deutscher, this shift has made the wealth destruction event even worse than what was seen in early 2022, despite Bitcoin and a few major altcoins remaining in a macro bull trend.
Deutscher attributes this shift partly to regulatory uncertainty, stating that traders have been forced to look for alternative ways to speculate due to restrictions on fair project launches.
“I don’t blame Pump Fun, as its launch is in direct response to the brash crypto regulation that has made it impossible to fair-launch projects.”
He adds that the industry has struggled to find a fair model for new projects since 2017, with airdrops being the closest alternative.
Bitcoin’s repricing and Ethereum’s quiet accumulation
While altcoins struggle with liquidity, analyst The Bitcoin Therapist believes that Bitcoin’s current price does not reflect its true value.
“Something is terribly wrong with the market’s pricing of Bitcoin. We are easily $50K–$100K undervalued,” he states, suggesting that a violent repricing event could be imminent.
If this is the case, Bitcoin’s dominance may remain elevated for much longer than expected. Historically, Bitcoin has gone through rapid repricing phases when institutional demand outpaces supply, which may be happening now.
However, as Matthew Hyland points out, the recent crash was also the largest liquidation event in crypto history, meaning a quick recovery should not be expected. “In 2020 & 2022, it took over two months for the full recovery to take place,” he notes.
Hyland cautions investors against expecting an immediate return to prior highs, particularly for altcoins. Even during the rapid rebound of 2020, there were multiple dips along the way.
“You likely won’t see those December highs on most alts for a minimum of two months, if not longer,” he says, adding that previous high-volatility events — such as the COVID crash, LUNA collapse, and FTX fallout — all took months to recover from.
Ethereum, meanwhile, is quietly seeing large accumulation from major players. Analyst Naiive highlights that Donald Trump, through his project World Liberty Financial, has reportedly purchased $200 million in ETH, while Fidelity and BlackRock have accumulated $49.75 million and $300 million in ETH, respectively.
This pattern suggests that whales are strategically shaking out weak hands, taking advantage of market uncertainty to accumulate at lower prices.
If institutional ETH accumulation continues, Ethereum could act as a leading indicator for broader altcoin demand. When Ethereum starts gaining against Bitcoin, it often signals early capital rotation into large-cap altcoins, which can eventually trickle down to mid-caps and smaller assets.
But until Bitcoin’s dominance shows signs of weakening, the altcoin recovery remains in a waiting phase.
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
