Bitcoin ETFs, while bullish for BTC, reduce the impact of the altcoin season with minimal capital rotation from BTC investors.
According to crypto analyst Miles Deutscher, the wealth effect that drove Bitcoin holders to reinvest in altcoins has diminished, altering the traditional market flow. Data from Glassnode further highlights a sharp decline in altcoin market capitalization, marking one of the most significant recent downturns.
The ETF Influence
Deutscher noted that historically, Bitcoin’s four-year halving cycle triggered wealth accumulation, leading to capital rotation into altcoins. As Bitcoin profits increased, funds typically flowed into Ethereum, large-cap cryptocurrencies, and smaller altcoins.
Deutscher notes that this cycle is now weakening due to fundamental market changes. In particular, the introduction of Bitcoin ETFs has significantly impacted this rotation.
Previously, Bitcoin holders kept their assets on centralized exchanges, reinvesting gains into other digital assets. Now, institutional investors and retail participants primarily hold Bitcoin through ETFs, which are settled in U.S. dollars rather than altcoins.
As a result, fewer funds remain within the crypto ecosystem, and capital is increasingly going toward traditional financial markets such as the S&P 500.
Institutional Investment Alters Liquidity
A shift in investor behavior further distinguishes the current cycle from previous ones. Deutscher explains that Bitcoin ETF investors do not act like traditional crypto whales, who historically increased risk exposure after price surges.
Instead, ETF holders lack direct access to altcoins and trade Bitcoin ETFs against fiat currencies rather than transitioning into Ethereum or Solana. This shift impacts market liquidity and weakens the conditions necessary for an altcoin season.
Glassnode data corroborates this trend, noting that the altcoin market cap has fallen by $234 billion in the past two weeks. This represents one of the most substantial absolute drawdowns in recent history.
Although significant, the decline aligns with major sell-offs observed in 2024 and remains less severe than the May 2021 miner migration or the late 2022 LUNA and 3AC collapses.
The #altcoin market cap has declined by $234B over the last two weeks, marking one of the largest absolute drawdowns in recent history. This broad-based capitulation highlights continued weakness across the sector, with few assets managing to hold ground: https://t.co/AGs05RdiXs pic.twitter.com/oxxKzGDDHb
— glassnode (@glassnode) February 12, 2025
The Breakdown of Fund Rotation
Another factor limiting capital rotation into altcoins is the increasing dominance of on-chain activity. Deutscher points out that wealth in the crypto space is now primarily engaged in DeFi, staking, and blockchain-based financial mechanisms rather than speculative trading on exchanges. This transition reduces the available liquidity for altcoin speculation.
Meanwhile, Bitcoin has remained more resilient despite the broader market decline. Glassnode reports that Bitcoin investors locked in $520 million in realized losses, a significant amount in this cycle.
However, this remains well below the $1.3 billion in losses recorded during the August 2023 yen-carry unwind. This highlights Bitcoin’s relative stability compared to altcoins.
DisClamier: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions and do not reflect The Crypto Basic opinion. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Basic is not responsible for any financial losses.
