Bybit x Block Scholes Institution Report: Altcoin Rotation — Why Altseason Hasn’t Come This Time?

Key Highlights:

In the ever-evolving landscape of cryptocurrency, "altseason" represents a pivotal phenomenon where altcoins significantly outperform major cryptocurrencies like Bitcoin and Ethereum. This article delves into the historical patterns of altseason, exploring its implications for investors and the broader market dynamics. By analyzing previous cycles, we uncover the factors that typically trigger these explosive periods of growth, as well as the current market conditions that may signal the next altseason. Understanding these nuances is essential for both seasoned traders and newcomers seeking to navigate the complexities of crypto investing.

Understanding Altseason: What It Is and Why It Matters

"Altseason," a term familiar to many crypto traders, refers to periods when altcoins significantly outperform major cryptocurrencies like Bitcoin and Ethereum. Historically, these phases have been characterized by capital rotation from Bitcoin into smaller, riskier projects, often leading to explosive growth in altcoin prices. This phenomenon has been evident in the past three major bull runs, notably in 2017 and 2021, when altcoins surged in value after Bitcoin reached new all-time highs (ATHs).

Bitcoin’s price movements have been cyclical since its inception in 2009. By analyzing historical price data, we can identify distinct periods of boom, bust and recovery. Notably, the two most recent bull runs have witnessed pronounced altseason events, whereby altcoins recorded extraordinary gains, often multiplying their market caps significantly.

Figure 1. Percentage of total non-stablecoin market capitalization of cryptocurrencies by BTC (orange), ETH (purple), XRP (grey), SOL (green), BNB (light yellow), DOGE (dark yellow) and all other cryptocurrencies (red) from 2013 to February 2025. Sources: CoinGecko, Block Scholes

For instance, during previous altseasons, the total market capitalization of altcoins surged between 6x and 7x. This explosive growth not only provided immense profit opportunities for traders, but also underscored the volatility inherent in the cryptocurrency space. However, one must also recognize that altseason often precedes the end of a bull run, as profit taking from large-cap tokens leads to a market correction.

Despite the historical significance of altseason, the current cycle appears markedly different. Bitcoin has continued to reach new highs while maintaining a strong market dominance, contrary to the typical pattern in which Bitcoin's dominance declines during altseason. This deviation raises critical questions about the nature of the current market, and whether a traditional altseason is imminent.

The Current Landscape: Indicators and Influences

Figure 2. BTC dominance before and after historical halving events (excluding 2012). Sources: CoinGecko, Block Scholes

Several factors contribute to the unique dynamics of the current crypto market. First, it’s informative to underscore the importance of Bitcoin’s halving events, which historically precede significant market capitalization and dominance shifts. In previous cycles, Bitcoin's dominance tended to decline approximately 230 days post-halving, leading to a capital rotation into altcoins. However, the recent halving in April 2024 didn’t trigger the expected decline in Bitcoin dominance, suggesting a potential structural change in market behavior.

Moreover, the performance of Ethereum (ETH) relative to Bitcoin has also shifted. Historically, Ethereum served as a primary beneficiary during altseason, often experiencing substantial gains as traders rotated out of Bitcoin. However, since 2022, Ethereum has underperformed not only Bitcoin but also several competing "Ethereum Killers," such as Solana (SOL) and Sui (SUI. This relative underperformance has raised doubts about Ethereum's capacity to lead the market into a new altseason.

Institutional adoption through Bitcoin Spot ETFs has further complicated the landscape. While the introduction of these ETFs has driven Bitcoin’s price to new heights, it’s also resulted in a capital flow that remains largely focused on Bitcoin and Ethereum. Many institutional investors appear hesitant to rotate their capital into smaller, more speculative altcoins, opting instead to remain in regulated ETF products.

Figure 3. Total stablecoin supply over time, broken down by major stablecoins: Tether (green), USD Coin (blue), Luna (aka Terra) (purple), Dai (yellow), Ethena (grey), FIRST (white) and USDD (orange) from February 2015 to February 2025. Sources: CoinGecko, Block Scholes

Last but not least, there’s been a significant increase in stablecoin supply, which has risen by 66% since the start of 2024. This indicates that while institutional activity may explain some market movements, retail engagement remains robust. Centralized exchanges (CEXs) recorded their largest trade volumes in Q4 2024, suggesting that retail traders are actively participating in the market, potentially looking for altcoin opportunities as liquidity increases.

What Lies Ahead: Potential Scenarios for Altseason

Given the current market dynamics, traders are left to ponder whether an altseason is on the horizon and what form it might take. The accompanying report presents several scenarios that could influence the emergence and nature of the next altseason:

• Market Correction and Profit Taking: As Bitcoin continues to reach new highs, there may come a point when profit taking becomes prevalent among retail traders. This could trigger a capital rotation into altcoins, leading to a potential altseason. Traders are advised to monitor Bitcoin's price movements and market sentiment closely for signs of this shift.

• Ethereum's Recovery: If Ethereum manages to regain its footing and outperform Bitcoin, it could serve as a catalyst for altseason. Should Ethereum reclaim its status as a market leader, capital may flow into altcoins at an accelerated pace, reminiscent of previous cycles.

• Institutional Interest in Alternative Coins: As regulatory environments evolve, there may be a growing appetite among institutional investors to explore altcoins, especially those with promising fundamentals. If institutions begin to diversify their portfolios into altcoins, it could significantly impact market dynamics and lead to a new altseason.

• Retail Activity and Meme Coin Mania: The report notes that recent surges in meme coin activity haven’t translated into a broader altseason. However, ongoing retail investors’ engagement could eventually lead to a more sustained altseason if traders begin to chase returns in the form of less mainstream altcoins.

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