Will the altcoin season come again?

Article: Dami-Defi

Translation: AididiaoJP, Foresight News

Bitcoin surges 20%, Ethereum follows closely, and what about your altcoin investments? Dead in the water.

You’re scrolling through Twitter, everyone celebrating new highs, but your portfolio looks like it’s stuck in 2023. Why is that?

Here’s a hard truth: Bitcoin’s price soaring doesn’t necessarily lift altcoins. To understand why, you need to discard a dangerous assumption.

Misconception: “Beta markets should immediately follow”

Most traders expect immediate rotation. Bitcoin rises on Monday, so altcoins should explode on Tuesday, right? Wrong.

The reality is liquidity enters the crypto market in layers, not all at once. Mainstream coins can continue rising for weeks, while altcoins remain sideways. This isn’t a market structure problem; it’s just how capital flows operate. The sooner you accept this, the better positioned you’ll be when the real rotation happens.

Liquidity layering: the actual order of capital entry

Stop looking at altcoin charts; you’re seeing false liquidity. Capital enters the crypto market in sequence, through three different layers:

Layer 1: Spot ETFs and mainstream spot markets (the most direct channel, the largest funds)

This is where institutions, family offices, and large asset allocators participate. They buy Bitcoin and Ethereum spot through regulated products. Zero leverage, zero complexity, maximum scale. These funds aren’t “exploring” altcoins; they are parked in these two assets with clear regulatory clarity.

Layer 2: Derivatives (fastest, but usually not targeted purchases of altcoins)

Basis trading, funding rate arbitrage, perpetual open interest. These activities can push BTC/ETH prices higher without triggering broad risk appetite.

Layer 3: Retail and on-chain risk (the last wave, usually altcoin market phase)

When ordinary traders finally gain enough confidence to rotate out of mainstream coins and seek beta returns, altcoins will start to move. But this is the last liquidity layer, not the first.

Understanding this layering changes everything. When Bitcoin rises and your altcoins don’t move, it only means liquidity is still in Layer 1 or Layer 2.

Basis Trap: When prices rise but risk appetite remains unchanged

This is a brutal reality check: Bitcoin can rebound strongly, but actual risk appetite may stay flat.

How does this happen? Cash holding arbitrage. Institutions buy spot Bitcoin, short futures, and profit from the basis. This behavior pushes Bitcoin’s price higher but has no intention of buying altcoins. Funding rates may stay high, open interest may increase, prices may slowly climb, while altcoins remain indifferent.

Healthy leverage looks like: open interest gradually increasing, moderate funding rates, spot trading volume leading.

Bubble leverage looks like: open interest growth outpacing price, funding rate >0.05%/day, long and short liquidations stacking up.

The basis trap explains why “Bitcoin rising should lift altcoins” often fails. The leverage driving Bitcoin up isn’t liquidity that will buy altcoins.

Bitcoin dominance range: not just “up or down”

Bitcoin’s market cap dominance (BTC.D) isn’t a simple “rising is bad, falling is good” indicator. It operates in three states:

Risk-off dominance: BTC.D rising — capital fleeing altcoins into Bitcoin. Altcoin holders suffer heavy losses.

Risk-on dominance: BTC.D rising — Bitcoin’s rally is so strong it “sucks the oxygen” from all other assets. The market looks technically bullish, but Bitcoin captures all gains, and altcoins may even decline in USD terms.

Rotation phase (BTC.D falling) — Bitcoin consolidates or cools down. Traders finally seek beta returns. Altcoins get attention, and this is the moment you’ve been waiting for—the altseason.

Beware false breaks of BTC.D; a single daily red candle doesn’t confirm rotation. You need a clear trend with multiple lower highs.

Ethereum isn’t an altcoin; it’s the “second-largest mainstream coin”

Stop lumping Ethereum and your Layer 1 projects together. Ethereum is the bridge between mainstream coins and altcoin risk. When institutions want higher beta than Bitcoin but less risk than altcoins, they buy Ethereum.

Ethereum also has its own spot ETFs, institutional custody services, and regulatory trends. Watch ETH/BTC closely; when this rate starts making higher highs, liquidity is finally flowing into riskier assets.

Why altcoins lag: five structural resistances nobody wants to admit

Let’s face reality. The structural issues facing altcoins weren’t as severe in previous cycles as they are now:

Dilution and unlock selling pressure — continuous token releases. Billions of dollars worth of tokens unlock monthly, with early investors and teams selling, creating ongoing sell pressure.

Fragmentation — now thousands of altcoins. No clear “altcoin index” for institutions to buy, diluting capital.

Narrative dispersion — AI tokens, DePIN, meme coins, gaming, RWA… each sector competing for attention. In 2017, “Ethereum killers” were the main narrative. Now? 47 narratives coexist.

Lack of clear use cases — many projects still haven’t proven product-market fit. Speculation is fine, but without real users, tokens struggle to gain traction.

Regulatory uncertainty — most altcoins lack regulatory clarity. Institutions want to participate but can’t.

These aren’t temporary obstacles; this is the new reality.

Rotation strategy: how the real altseason arrives

Forget those random surges; true rotation follows a sequence:

Bitcoin pulse-like rally, then consolidation.

Ethereum gains buying interest. ETH/BTC begins improving.

Mainstream coins cool down. Traders get bored and seek beta.

Altcoins rise in waves. Large-cap altcoins first, then mid-cap, then small-cap.

This sequence can take weeks or months; patience pays off.

Signals for triggering altseason

Here’s your checklist; you need multiple signals:

BTC.D trend: confirmed downtrend.

ETH/BTC trend: higher highs, reclaiming key levels.

Stablecoin supply growth: new capital entering the system.

Funding rate + open interest status: risk appetite opening but not overheating.

Altcoin breadth: most altcoins breaking out.

Additional signals (professional mode):

TOTAL2 vs BTC: is the total altcoin market cap outperforming Bitcoin?

Perpetual contract trading volume share: are traders truly trading altcoins or just mainstream coins?

Meme coin frenzy index: retail sentiment thermometer.

When most of these signals turn green, rotation is real.

False altseason: trap chart

Not every rally is an altseason; beware of these illusions:

Trap 1: Localized surge — only two or three altcoins skyrocket, while breadth remains dead. This isn’t rotation; it’s a show.

Trap 2: Meme coins surge, but genuine altcoins don’t — when Dogecoin, Frogcoin, etc., skyrocket but your Layer-1 and DeFi blue chips remain sideways, it’s unsustainable. Retail gambling, not institutional rotation.

Trap 3: ETH rises but ETH/BTC doesn’t confirm — if ETH rebounds but ETH/BTC remains weak, it’s just Bitcoin dragging everything up. Not genuine ETH strength.

False altseason will trap impatient traders.

Summary

Bitcoin and Ethereum surge first because liquidity enters there first. Altcoins lag due to structural resistances, dispersed narratives, and the simple fact that building risk appetite takes time.

Stop expecting immediate rotation; start observing liquidity layering. When the signals for altseason become obvious, it’s near. Until then? Mainstream coins remain the trading opportunity.

Altseason will come, but not on your timetable—it’s on the liquidity timetable.