Is the AltCoin season dead? BTC ETF rewrites the investment rules for encryption

Author: Bryan Daugherty

Compile: Block unicorn

Bitcoin exchange-traded products (ETFs) may fundamentally change the concept of "altcoin season" in the crypto market.

For many years, the crypto market has followed a familiar rhythm, with fund rotation being almost predictable. Bitcoin soared, attracting mainstream attention and liquidity, followed by funds pouring into altcoins. Speculative capital flows into low market value assets, driving up their value, which traders excitedly refer to as the 'altcoin season'.

However, the cycle that was once taken for granted is showing signs of structural collapse.

Spot Bitcoin exchange-traded funds (ETFs) broke records in 2024, attracting $129 billion in inflows. This provides unprecedented Bitcoin investment channels for retail and institutional investors, but also creates a vacuum, absorbing funds from speculative assets. Institutional investors now have a secure, regulated way to access cryptocurrencies without the risks of the "wild west" of altcoin markets. Many retail investors also find ETFs more attractive than searching for the next hundredfold token. Renowned Bitcoin analyst PlanB even converted his actual Bitcoin holdings into spot ETFs.

This transformation is happening in real time, and if funds continue to be locked in structured products, altcoins will face reduced market liquidity and relevance.

Has the era of altcoins died? The rise of structured crypto investments

Bitcoin ETF provides another option for chasing high-risk, low-market-cap assets. Investors can gain leverage, liquidity, and regulatory transparency through structured products. Retail investors, who used to be the main driving force of altcoin speculation, can now directly invest in Bitcoin and Ethereum ETFs, eliminating concerns about self-custody, reducing counterparty risks, and aligning with traditional investment frameworks.

Institutions are more motivated to avoid the risks of altcoins. Hedge funds and professional trading platforms used to chase higher returns in low-liquidity altcoins, now they can deploy leverage through derivatives, or gain exposure to traditional financial tracks through ETFs.

With the enhanced ability to hedge through options and futures, the motivation to speculate on altcoins with poor liquidity and low trading volume has significantly weakened. This trend has been further strengthened in February by the record $2.4 billion outflows and arbitrage opportunities brought by ETF redemptions, forcing the crypto market into an unprecedented discipline.

The traditional 'cycle' starts with Bitcoin and then enters the altcoin season. Source: Cointelegraph Research

Will venture capital give up on crypto startups?

Venture capital (VC) firms have always been the lifeblood of the altcoin season, injecting liquidity into emerging projects and weaving grand narratives for emerging tokens.

However, as leverage becomes easily accessible, capital efficiency becomes a key priority, and VCs are rethinking their strategies.

VC strives to achieve as high a return on investment (ROI) as possible, but the typical range is between 17% and 25%. In traditional finance, the risk-free rate of return on capital serves as the benchmark for all investments, typically represented by the yield on U.S. Treasury bonds.

In the field of cryptocurrencies, the historical growth rate of Bitcoin serves as a similar benchmark for expected returns. This effectively becomes the risk-free rate for the industry. Over the past decade, Bitcoin has averaged a compound annual growth rate (CAGR) of 77%, significantly outperforming traditional assets such as gold (8%) and the S&P 500 index (11%). Even in the last five years, including bull and bear market conditions, Bitcoin's CAGR has remained at 67%.

Based on this, venture capitalists deploy capital at this growth rate in Bitcoin or Bitcoin-related companies, the total ROI within five years will be about 1,199%, meaning the investment will increase nearly 12 times.

Despite the volatility of Bitcoin, its long-term excellent performance makes it the fundamental benchmark for evaluating risk-adjusted returns in the crypto space. With increased arbitrage opportunities and reduced risks, VCs may opt for safer bets.

In 2024, VC transaction volume decreased by 46%, despite a rebound in overall investment volume in the fourth quarter. This marks a shift towards more selective, high-value projects rather than speculative funds.

Web3 and AI-driven crypto startups continue to attract attention, but the days of indiscriminate funding for every token with a whitepaper may be numbered. If venture capital further shifts towards structured investment through ETFs rather than direct investment in high-risk startups, new meme coin projects may face serious consequences.

At the same time, a few altcoin projects that have entered the institutional radar (such as Aptos, which recently submitted an ETF application) are exceptions rather than the norm. Even crypto index ETFs aimed at gaining broader exposure struggle to attract significant inflows, highlighting the concentration of capital rather than dispersion.

Overcapacity problems and new market realities

The market landscape has changed. The saturation problem caused by the large number of shill coins vying for attention. According to Dune Analytics data, there are currently over 40 million tokens in the market. In 2024, an average of 1.2 million new tokens are launched each month, with over 5 million tokens created since early 2025.

With institutions tending towards structured investments, and a lack of retail-driven speculative demand, liquidity is no longer flowing into shitcoins as it used to.

This reveals a grim fact: most altcoins will not survive. Ki Young Ju, CEO of CryptoQuant, recently warned that without a fundamental shift in market structure, most of these assets are unlikely to survive. "The era of everything going up has ended," Ju said in a recent X post.

In an era where funds are locked in ETFs and perpetual contracts rather than freely flowing into speculative assets, the traditional strategy of waiting for Bitcoin dominance to weaken before turning to altcoins may no longer be applicable.

The cryptocurrency market is no longer what it used to be. The days of easy, cyclical rises in altcoins may be replaced by an ecosystem where capital efficiency, structured financial products, and regulatory transparency determine the flow of funds. ETFs are changing the way people invest in Bitcoin and fundamentally altering the distribution of liquidity in the entire market.

For those who base their assumptions on the prosperity of altcoins after each rise in Bitcoin, it may be time to reconsider now. With the maturation of the market, the rules may have changed.