After a pullback of over 40%, is the opportunity for alts here?

Original Title: Are Altcoins Still Cooked?

Original author: hyphin

Original source:

Compiled by: Daisy, Mars Finance

Objectively speaking, cryptocurrencies are experiencing a rare strong market that is hard to come by in a generation. In just a few short years, goals and milestones that were once considered unattainable have been achieved.

As resistance levels turn into support, the global market capitalization continues to oscillate upwards, with a value increase of approximately $32 trillion since the bear market low, rapidly breaking through historical highs with unprecedented fluidity. Meanwhile, altcoins are attempting to test the critical psychological resistance zone for the third time—previous attempts in 2021 and 2024 both failed, leading to a decline of over 40%. If this unknown territory can be breached, a shift in market focus away from Bitcoin may trigger significant volatility; however, if it fails again without subsequent support, it would be a devastating blow to the gradually building market confidence.

The asymmetrical growth between the global market and the altcoin market indicates that most of the appreciation we are witnessing is driven solely by Bitcoin.

The performance of earnings in the first quarter of this cycle was lackluster, but a turning point occurred in October 2023: the market began to believe that cryptocurrency ETFs are not just a benign optimistic expectation. With Bitcoin leading the surge, momentum quickly built up, and market consensus suggests that other cryptocurrencies will follow suit. Another significant catalyst is the pro-cryptocurrency U.S. authorities hinting at the introduction of landmark regulatory reforms, aiming to make the U.S. a beacon of industry progress and possibly establish a strategic Bitcoin reserve. This triggered market euphoria, with Bitcoin breaking the long-anticipated six-figure mark, bringing attention back to altcoins.

Despite the escalation of geopolitical tariff tensions by April of the following year, most altcoins have seen their gains evaporate, but the "kingmaker" of this cycle (Bitcoin) remains as solid as a rock. After a slow decline, the entire market is bound to rebound, with signs of recovery already evident in stablecoin issuance and Ethereum among other areas.

There is no doubt that Bitcoin is the focus of this bull market - as a digital asset that was once considered only for illegal activities tries to establish itself in mainstream finance, alternative assets have also been passively lifted.

The performance of altcoins (especially Ethereum) continues to be surprisingly weak compared to previous years, as the large-scale correction of Bitcoin's dominance, which usually indicates a rotation of funds into high-risk assets, has not yet occurred.

The lack of stimulating factors, combined with the fragmentation of liquidity (the influx of emerging trading venues and products exacerbates this phenomenon), has created an environment where excess returns are increasingly difficult to obtain, and erroneous beliefs have led to the prevalence of "community member syndrome." Excluding stablecoins, wrapped native tokens (which provide no yield), and cross-chain bridge tokens, the 365-day return rates of the top 250 cryptocurrencies by market capitalization clearly confirm this phenomenon:

The average increase was about 368.55%, while the median was only 25.9%. Two-thirds of the cryptocurrencies in the dataset failed to outperform Bitcoin, Ethereum, or Solana. Certainly, wrong bettors may still have profits, but they took on higher risks and volatility.

Truly exceptional assets that surpass the benchmark include native token derivatives (such as staking/re-staking protocols), a few meme coins, and popular tokens with strong fundamentals and narratives (such as Hyperliquid, Mantle, Ethena).

Has the market ended?

If we take the romanticized surge of 2021 as a reference, the momentum challenging the steep decline should have appeared earlier. Although the price trend up to July this year has been disappointing, it has formed higher lows, hinting at a potential reversal at first glance.

Although there have been two significant surges of altcoins before, they were short-lived and left no traces on the charts. However, the current fluctuation (+37.17%) is the largest and longest-lasting in the past two and a half years. For a more detailed perspective, you can refer to practical tools that track the relationship between Bitcoin and altcoin returns.

Given that "hindsight" is our specialty, and the current budget cannot afford a magic crystal ball to glimpse the future, bold predictions about the future direction of altcoins may as well be left to the paid group leaders and loss-making traders on crypto Twitter. We neither sell dreams nor spread panic, but rather attempt to maintain a neutral analysis of existing data for readers to judge for themselves.

The chart comparing the total market capitalization of altcoins with Bitcoin corroborates the previous viewpoint from a slightly different angle: the high indicator readings during relatively subdued performance periods suggest that while there is a correlation with the rise that benefits altcoins, any significant increase in market capitalization is overshadowed by Bitcoin's brilliance—this is quite normal in the early stages of a bull market. In the later stages, especially when Bitcoin shows signs of stagnation, the directional shift becomes increasingly apparent, and the correlation begins to dissolve. The phenomenon of gradually expanding volatility seen in the previous comparison charts reflects this pattern.

The key areas revealed by the global open interest dominance chart show significant patterns. Before a major market move starts, the open interest ratio of Bitcoin tends to shrink while altcoins dominate. Interestingly, this phenomenon often occurs near local tops—at this point, Bitcoin has just reached or is about to set a new high, usually accompanied by a wave of selling. The current situation is no exception in terms of timing: after Bitcoin surged to a historic high of $123,682 a month ago, the dominance of open interest in altcoins has gradually approached about 64%.

Compared to the previous period when altcoins led the surge, several differences are particularly prominent: Bitcoin's dominance is gradually declining, Ethereum's influence is increasing, and the abnormal performance of non-ETH altcoins. This conveys two contradictory signals: either the market is about to end, or, as ancient texts suggest, a real altcoin surge led by Ethereum is brewing. Regardless of the final path, increased market volatility seems inevitable, and leverage should be used cautiously.

Conclusion

The answer to whether altcoins have reached their end is undoubtedly a resounding "no"—after all, positive outcomes and progress have been emerging continuously. Although it is difficult to escape the cognitive biases instilled during the past easy-profit period (when blindly selecting coins or only conducting superficial due diligence could lead to success), each cycle presents new dynamics and challenges, and predictions based on outdated information often fail. Ultimately, investing in unregulated speculative assets carries extremely high inherent risks, and one must exercise extreme caution to avoid losses. When social media is filled with posts celebrating windfalls, promising high returns, and promoting beliefs, it is inevitable to feel the urge to bet one’s entire fortune in hopes of an early retirement. But please remember: their lies should not be believed.