Bybit x Block Scholes: The Altcoin Rotation: Why and When Altcoins Outperform Bitcoin

What Is Altseason and Why Should I Care?

What Is Altseason?

In the several market cycles since Bitcoin’s inception in 2009, crypto assets have shown an eerily similar pattern of price action. In August 2024, we took a look at Bitcoin’s historical price data in order to break these patterns down into specific cycles — highlighting periods of boom, bust and recovery in BTC’s spot price.

We saw that the bust (or crash) periods of previous cycles had historically seen BTC give up nearly 80% of its spot price gains. In the subsequent recovery stages, Bitcoin had reclaimed the all-time high (ATH) that it had set in the preceding cycles. Boom periods had seen a wave of euphoria, in which BTC rallied to repeatedly record several new highs before the cycles began anew. This pattern allowed us to visualize three distinct historical crypto bull runs so far — the 2012–14 cycle, 2015–18 cycle and 2019–22 cycle.

However, this explanation of crypto cycles is limited to Bitcoin’s price only, and far oversimplifies the analysis of crypto asset cycles. In particular, it ignores the fact that of the three crypto bull runs that we’ve defined, the most recent two have experienced a phenomenon known to many crypto traders as “Altcoin Season.”

Altcoin Season, or “altseason,” is usually characterized by a period of significant and sustained outperformance of altcoins beyond that of major tokens like Bitcoin and Ethereum. Such periods have been marked by profit-taking on well-performing large-cap token positions (usually starting with Bitcoin), followed by reinvestment of that capital into smaller, riskier crypto projects. As a result, many altcoins have recorded larger and faster returns than Bitcoin during these periods — that is, altcoins with a large market capitalization have often reached and exceeded their previous all-time highs, while mid- to small-market-cap tokens have exploded to new highs not seen before.

Why Should I Care?

Some of the wildest opportunities offered by an already game-changing asset class have occurred during periods of profit-chasing in altseason (and altcoin mania!). Altseason has historically seen crypto behave at its most extreme — floods of tokens have experienced their most jaw-dropping returns in this particular time period. As we can see in the chart below, the total altcoin market cap excluding Bitcoin has surged between 6–7x with each altseason cycle.

However, altseason has also precipitated the end of bull run cycles. At this point in previous cycles, positions in large-cap names (particularly BTC and ETH) have become relatively overcrowded as retail traders begin to recycle their profits into other, smaller tokens in search of larger (and riskier!) returns. The flow of new capital into the market dries up, and a market top soon follows as the mania pushes the market to an unsustainably frothy level. Therefore, while the historical data cannot tell us for certain what will unfold next, a solid understanding of how past events have played out can provide insight into our current position in the market relative to the broader cycle, as well as what to expect next. 

The current cycle, however, feels different from those that have gone before. BTC has continued to make new highs throughout the period in which — historically — its market dominance has tended to fall. We‘ve seen the halving event pass without the same capital rotation into altcoins as the historical patterns would suggest. Is this time different? By defining the beginning and end points of historical altseasons retrospectively, we can attempt to contextualize the current stage of crypto price action to answer this question.

We can associate the beginning of a historical “altseason” with a cycle’s local peak in Bitcoin dominance (when altcoins begin to see exponential growth in price and market cap), ending when the total market cap of all altcoins reaches a new ATH (the top for altcoins in that cycle). The two previous occasions that we’ve recorded so far have always coincided with the “boom” period of the wider cycle, in which BTC gradually makes new highs.

‘Wen Altszn?’

A Deeper Dive Into Crypto Market Cap

In order to understand how soon (if at all) altcoins will feel the benefit of a rotation of attention away from larger names like Bitcoin, we’ll use the historical performance of Bitcoin as a guide to our current position in the broader 4-year cycle, as we’re looking to be guided by the historical precedent. The subsequent charts of this section will allow us to visualize the altseason phenomenon by gradually delving into the market cap of all non-stablecoin crypto assets.

To begin with, we plot in white the full market cap of BTC, ETH and “everything else” (all other tokens excluding stablecoins) which has grown since Bitcoin’s genesis block in 2009 to trade close to $3.5T. Behind the total market cap figure, we show the breakdown of the white line into each category by percentage of the total market cap held by each token. Dotted white lines provide some further context to the boom, bust or recovery subcycles defined above.

Already, this chart shows signs of capital rotation from BTC into ETH and other altcoins in each cycle. However, we wish to go further in our analysis by breaking down the Other category in the chart above to include some of the other major altcoins, notably Solana (SOL) and Ripple (XRP), in order to get a better understanding of the flow of capital in a crypto bull run. First, we’ll find the list of non-stablecoin crypto assets that have appeared in the top 15 by market cap. Then, we plot the proportion of the total market cap over time made up by these named tokens, and relegate what's left (nearly 17,000 other tokens by some counts) to another Other category.

The resulting breakdown allows us to see that the two previous altseasons can both be characterized by a pattern of capital flow between crypto assets during periods of growth in the total market cap. 

In the initial recovery phase, the majority of capital into the crypto market flows primarily to Bitcoin, and its dominance rises as its market cap increases. Altcoins benefit on the margin from Bitcoin’s appreciation, though they generally underperform BTC at this stage. As BTC then enters its boom phase, non-BTC assets gain an increasingly greater share of the market, as traders appear to begin to downsize their Bitcoin positions with each new local high.

When Bitcoin’s share of the total market cap begins to tail off, we see Ethereum’s market share increase. This then aggressively spirals into a fuller “altseason,” as capital begins to filter into the mid- and small-cap tokens, while ETH simultaneously continues to appreciate.

This also demonstrates the dynamic we introduced in the previous section: contrary to what is often thought, Bitcoin doesn’t need to top out completely before altseason begins, and generally has enjoyed an appreciation in its absolute price alongside the altcoins’ rally.

Party Like It’s 2017 (or 2021) ...?

Looking first in isolation at the 2017 cycle, Bitcoin dominance began to crater from a local high in February 2017, from more than 80% to below 32% by January 2018. Ethereum was the first beneficiary of that lost market share, expanding its own share significantly between March and mid-May. Much of that liquidity then eventually flowed into the rest of the market, before Bitcoin briefly regained its dominance ratio back to 60%. From there, BTC went on to reach its retrospective cycle top of $19.7K (marked by the second vertical dotted line) in late December 2017, but total market cap continued to increase for another week and a half before also topping out with the cycle’s end. 

The 2021 cycle was a more unique case. It began with the same flow of capital patterns — Ethereum took the lion’s share of the altcoin market, as traders shifted out of Bitcoin, with altcoins subsequently rallying significantly. Bitcoin reached a local top of $63K at the end of April 2021 as its dominance fell to the 40% level. 

However, the difference from the previous cycle became more apparent from this point onward. BTC fell 50% in response to China’s regulatory moves on Bitcoin and Bitcoin mining, dipping below $30K briefly by mid-August in a move that saw altcoin market capitalization also half in value. That reset then resulted in a second top in November for both BTC and the alts. During this second leg up, however, BTC dominance oscillated within a band of 40–46%, despite altcoins making a nearly $1T gain in that period.

If the two previous altseasons were characterized by a sharp decline in Bitcoin dominance, then the third has yet to arrive. In March 2024, BTC rallied above its previous ATH (recorded on Nov 9, 2021) for the first time (marked in the graphic below by the white dotted line in March). Its dominance, however, didn’t experience a rapid drop following that March high — in other words, the rotation outward into altcoins that had taken place in previous cycles didn’t occur. In fact, in the entire period from March to early November 2024, BTC dominance remained almost flat.

Is This Altseason Smaller? Has It Come and Gone?

The Halving Effect and 2020’s DeFi Summer

There’s one reason why perhaps the March 2024 rally didn’t result in the typical rotation we would have expected: pre-halving rallies to new all-time highs hadn’t occurred in previous cycles. Instead, both past altseasons (and generally all subcycle “boom” periods for BTC) had occurred a few months after the BTC halving events. 

When looking at the past two cycles, BTC dominance tends to fall around 230 days after the halving event. The line marking out the current cycle shows we’re well past this point, with dominance still close to the 60% mark. Historical price action suggests that we’re overdue for the expected fall in BTC dominance.

This chart also clarifies that the so-called “meme coin mania” that followed the early 2024 Bitcoin rally (during which performance in meme coins dwarfed every other altcoin asset class) doesn’t fit the requirement for altseason, since it caused a minimal move in Bitcoin dominance.

Instead, it more closely resembles the DeFi Summer of 2020, which refers to the explosion of innovation from March 2020 to September 2020 in the DeFi ecosystem, consisting primarily of protocols launched on the Ethereum blockchain. DeFi Summer did lower BTC dominance slightly, but ultimately, this move preluded the eventual 2021 altseason that we discussed in an earlier section. Total value locked (TVL, a measure of the capital invested, controlled or otherwise staked on a protocol) rose from $800M to nearly $10B during that summer period — with transaction costs and times on ETH skyrocketing amid the demand.

Many market participants may have viewed that period of DeFi growth as the altseason of the cycle. However, as the chart below shows, when the actual altseason arrived in 2021, it blew the DeFi Summer out of the water. TVL went on to increase to $130B, and then topped out at $200B by November.

In the same manner, the early 2024 meme coin mania became a well-known narrative that drew a lot of attention and capital. As Ethereum did during the DeFi Summer, Solana was able to benefit disproportionately from the rest of the market by a craze of meme coin speculation activity. However, when zooming out to the wider picture, neither event quite moved the needle on the wider cryptocurrency market cap, as the altseason periods have.

What About the Post-U.S. Election Rally?

If meme coin mania wasn’t altseason, then what about the post-election rally in both Bitcoin and altcoins that followed Trump’s victory in the 2024 U.S. elections?

Crypto experienced a Q4 rally that saw Bitcoin break the greatly coveted $100K price target for the first time, but — as optimism grew around the prospects of a more crypto-friendly regulatory environment and U.S. Congress — many newer DeFi protocols and “previous cycle” Layer 1 (L1) and Layer 2 (L2) projects stole the limelight. “Old cycle” projects — such as ADA, VET and HBAR — were among the prime beneficiaries, as tokens that were largely ignored in the post-ETF launch rally saw shinier, more recently launched tokens move up instead [e.g., SUI and Ethena (ENA)].

But despite a more significant and broad-based rally than the move at the beginning of 2024, even the Trump victory rally resulted in just a small decline in BTC dominance, from 57% down to 51%. The majority of that change can be attributed to the resurgence of perhaps the biggest and most well known “old cycle” token: XRP. 

Relative to the rest of the altcoin market, XRP in particular was a victim of the SEC’s harsher regulatory stance toward altcoins. This meant it was one of the major beneficiaries in the so-called basket of “Trump trades” when it became clear that he was campaigning on a platform of more crypto-friendly policies. Indeed, between Nov 5, 2024 and Jan 17, 2025, XRP surged from $0.51, exceeding its 2021 high to reach $3.30. 

With that move, XRP was able to take a significant amount of capital away from the rest of the altcoin market (as seen in the chart below), flipping both SOL and USDT to become the third-largest cryptocurrency by market cap in December 2024. XRP’s price action was bolstered further by an array of other tailwinds, including speculation about a spot ETF and the prospect of a new wave of institutions eager to utilize its global payment system as its legal battles with the SEC eased. 

This Time Around …

If the performance of altcoins through one meme coin craze and one post-election explosion haven’t replicated the meaningful and sustained decline in Bitcoin dominance of the previous two cycles, are we to conclude that this cycle is structurally different from those that have gone before?

Ethereum Killers

There is some evidence to suggest that the answer is yes. Rotations out of Bitcoin have generally started with Ethereum first, which has previously seen its market cap balloon significantly. A major driver that may have disrupted the status quo is ETH’s significant underperformance relative to Bitcoin. Figure 14 (below) shows that this underperformance trend has been remarkably apparent since September 2022.

However, ETH has not only underperformed Bitcoin: in 2024 it has also lagged behind all other altcoins. This is particularly clear since the halving event in April 2024, which — when compared with the post-halving performance of ETH and altcoins in the aftermath of the previous two halving events — shows just how different this cycle is. Previous post-halving cycles had seen ETH increase its market cap by multiples between 5–10x at the same period of time following the halving event.

Therefore, ETH’s relative underperformance cannot simply be measured against that of Bitcoin alone. From September 2022, which coincided with the Ethereum network’s upgrade (The Merge), ETH temporarily gained a greater share of the market relative to alternative smart contract–enabled, Layer 1 blockchain projects — those dubbed “Ethereum Killers.” We plot the relative size of the market capitalization between ETH and five of the largest such competitors (by market cap) in the chart below.

The post-Merge growth was temporary — from 2023 onward in particular, Ethereum has rapidly been losing its market share, first to Solana (as well as both SUI and TON). Each offers an alternative Layer 1 platform with faster transactions than Ethereum’s at a fraction of the cost. These factors and others have started to draw both users and developers (who are looking to build client-facing applications) away from Ethereum. While in the previous cycle Ethereum was able to benefit immensely from the majority of DeFi and metaverse applications/protocols being built on its network, the current cycle has thus far seen retail traders favoring cheaper fees, which has particularly benefited high-transaction-throughput meme coin activity and alternative L1s instead.

A New Type of Investor

ETH isn’t necessarily fated to underperform indefinitely. Note that the last time the ETH/BTC spot price ratio was at its current level of 0.03 was on the eve of the 2021 breakout, after which the ratio reached 0.08 (with ETH more than doubling in price from that point on). 

Currently, Ethereum is still the only non-Bitcoin crypto asset that has the benefit of a spot ETF wrapper. If BTC ETF investors do decide to recycle their profits, that will position ETH Spot ETFs as a likely next destination, which could drive price action. However, BTC’s and ETH’s privileged positions as the sole crypto assets to receive spot ETF approvals in the U.S. may not continue for long. Several altcoins — including those competitors to Ethereum’s Layer 1 smart contract–enabled blockchain, SOL and XRP — have ETF applications under review with a newly crypto-friendly SEC administration.

This institutional interest might have changed the flow of capital that described the last two altseasons, thus partially responsible for the limited capital rotation so far. While institutional adoption into Bitcoin via the spot ETFs led to its reaching a new all-time high of $73K ahead of schedule (and ahead of the halving event in April 2024), and also likely supercharged the post-election exuberance in Bitcoin, many of those institutional investors may not be willing to rotate their capital out of ETF holdings and into altcoins.

One method by which we can evaluate the flow of capital in crypto outside of the relatively walled ETF garden is that of stablecoin supply. Stablecoin market cap has increased 66% since the start of 2024, and nearly 20% between Q3 and Q4 2024 alone. In addition, centralized spot exchanges recorded their largest trade volumes to date in Q4 2024. These facts indicate that, while ETF activity does explain some of the performance in crypto, on-chain and crypto-native metrics suggest that there’s still a significant contingent of retail activity driving price action — retail activity that’s more likely to rotate to riskier altcoins in the familiar frenzied way.

But Really … Wen Altszn?

Altseasons have marked the height of the previous two crypto bull runs, as altcoins have far outpaced BTC in both price performance and market share. Market capitalization trends across the 2017 and 2021 cycles show that altseason has typically coincided with a pronounced drop in Bitcoin’s dominance of the total crypto asset market cap. Liquidity that has initially flowed into BTC soon funnels into Ethereum, and then more aggressively into mid- to small-cap projects, leading to dramatic surges in total altcoin market cap.

The past year has seen several instances of altcoin activity, such as the meme coin mania that coincided with BTC notching a pre-halving ATH in the aftermath of the Bitcoin Spot ETF launches in January 2024, and the post-U.S. election rally that saw strong performances by “old cycle” tokens (such as ADA and XRP) that had previously received unwanted attention from a wary SEC. Yet despite these brief flurries of activity in altcoins, Bitcoin’s dominance has not (yet!) retreated in the same marked fashion. Consequently, many of the hallmarks of a classic altseason, such as a sustained crash in BTC dominance paired with a broad-based altcoin explosion, remain elusive this cycle.

Several factors could explain why the current environment appears structurally different. First, pre-halving rallies weren’t a feature of previous cycles, and yet we saw BTC break new highs before the April 2024 halving took place, upsetting the usual post-halving capital rotation into altcoins. Secondly, Ethereum (ETH) — a past bellwether for initiating capital flight from BTC — has underperformed not only Bitcoin, but other leading Ethereum Killers, such as SOL, SUI and TON, too. Lastly, institutional adoption — driven largely by spot ETFs — may be reshaping the capital flow pattern altogether, as some big players opt to remain in more regulated and “safer” ETF products, rather than funneling funds into smaller, more speculative tokens. Still, robust stablecoin supply growth and record exchange volumes point to ongoing retail engagement, suggesting that while the script may have changed, an altseason-like frenzy could yet materialize if the right confluence of events aligns.