The crypto market is undergoing a structural shift, with capital no longer favoring small altcoins but instead focusing on high-quality assets with clear regulation and ample liquidity. The altcoin index has plummeted nearly 40% this year, forming a stark contrast with the US stock market.
(Background: Small-cap tokens have fallen to a four-year low, and “altcoin bulls” are completely hopeless?)
(Additional context: By sniping altcoins on DEX, we have made $50 million in one year)

Table of Contents

• US Stock and Altcoins: Two Different Worlds
• Return Imbalance Under High Correlation
• Capital Flows Toward Quality Assets
• Diversification Has Lost Its Meaning

Over the past year, the crypto and US stock markets have shown a stark contrast. The S&P 500 and NASDAQ 100 indices have gained 47% and 49% respectively over two years, while the altcoin index has been deep in a downtrend. The crypto market is experiencing a structural shift of capital toward high-quality assets.

US Stock and Altcoins: Two Different Worlds

The S&P 500 is projected to rise 25% and 17.5% in 2024 and 2025 respectively, while the NASDAQ 100’s gains in the same period are 25.9% and 18.1%, with a maximum drawdown of only about 15%.

In contrast, the altcoin market, represented by the CoinDesk 80 Index (tracking 80 cryptocurrencies outside the top 20), crashed 46.4% in Q1 2025, and from the beginning of the year to mid-July, it has fallen 38%.

The MarketVector Digital Asset 100 Small Cap Index even dropped to its lowest point since November 2020 by the end of 2025, with the total crypto market cap evaporating over $1 trillion.

Return Imbalance Under High Correlation

The core of this contrast is the “return imbalance under high correlation.” The CoinDesk 5 Index (tracking mainstream coins like Bitcoin) and the CoinDesk 80 have a correlation of up to 0.9, moving in sync but with vastly different returns. The former gained 12%-13% during the same period, while the latter fell nearly 40%.

Risk-adjusted returns are even more divergent. Altcoin indices have volatility comparable to or higher than US stocks but have recorded significant negative returns, with negative Sharpe ratios; meanwhile, US stock indices maintain positive Sharpe ratios.

Over the past five years, the MarketVector Small Cap Crypto Index has returned -8%, while the broader crypto index has surged 380%, clearly reflecting institutional voting with their feet.

Capital Flows Toward Quality Assets

Kaiko data shows that although altcoin trading volume has rebounded to 2021 levels, 64% of it is concentrated in the top 10 altcoins, with “institutional-grade” assets like Solana and XRP, which have clear regulatory clarity, becoming minority winners.

Capital has not exited the crypto market but has flowed upward along the quality curve. Bitcoin and Ethereum spot ETFs continue to attract institutional participation.

Diversification Has Lost Its Meaning

For investors, diversifying into altcoins no longer makes sense. The near 0.9 correlation between CoinDesk 5 and CoinDesk 80 means holding altcoins cannot provide diversification benefits and only adds extra risk.

The “Altcoin Season” index fell sharply from 88 to 16 by the end of 2024, further confirming its tactical trading nature rather than a long-term asset allocation.

The current market logic has completely shifted: capital no longer favors small altcoins but instead focuses on high-quality assets with clear regulation and liquidity. Bitcoin and Ethereum are gaining institutional recognition through ETFs, while the US stock market, with its stable returns, continues to attract funds. Both are squeezing out the survival space for low-quality altcoins.

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