Can Altcoins Survive as Bitcoin Dominance Reaches Multi-Year Highs?

Altcoins have recently experienced a significant sell-off, resulting in the loss of over $460 billion in just a few days. This decline has raised questions about whether liquidity will return to altcoins or if the hope for another altcoin season is fading.

On February 3, global financial markets experienced a sharp flash crash due to Donald Trump’s imposition of tariffs on China, Canada, and Mexico. This triggered a sell-off across global markets, including stocks, commodities, and cryptocurrencies, with altcoins being the most affected.

By February 3, the total market capitalization of altcoins had dropped from $1.46 trillion at the end of January to $1 trillion, marking a 31.5% decline and wiping out $460 billion in market value.

Although the market has shown some signs of recovery and currently stands at $1.22 trillion as of February 5, it is still 16% below its January levels and 28% below its all-time high in November 2021.

The overall sentiment in the altcoin market remains weak. One indicator of altcoin performance relative to Bitcoin is the CMC Altcoin Season Index, which tracks the top 100 altcoins over the past 90 days. As of February 5, the index sits at 36, a significant drop from 87 in December 2024.

A reading above 50 suggests a mild altcoin rally, while above 75 indicates a full-fledged altcoin season. The current level of the index indicates that Bitcoin continues to dominate the market, with altcoins struggling to gain traction.

The price performance of major altcoins also reflects this sentiment. Ethereum (ETH) has declined over 18% year-to-date and is currently trading at around $2,800. Solana (SOL) has experienced modest growth, rising 5% since the beginning of the year to reach $205. Ripple (XRP) has been one of the best-performing large-cap altcoins, gaining 21% year-to-date and surging 360% over the past three months.

With increasing institutional interest in Bitcoin, the question remains whether altcoins will experience a strong rally in 2025 or if Bitcoin’s dominance will persist.

Bitcoin’s growing dominance in the market has created a bottleneck for altcoins, preventing capital from flowing into them as it has in previous cycles. As of February 5, Bitcoin accounts for 61.5% of the total crypto market cap, its highest level since early 2021.

To understand why this is happening, it is helpful to look at historical trends. Bitcoin dominance tends to rise during uncertain times, such as the collapse of FTX in November 2022.

A key difference this time is the presence of institutions. Since the approval of spot Bitcoin ETFs in January 2024, Bitcoin has been absorbing an unprecedented amount of liquidity. Spot BTC ETFs currently hold over $120 billion in assets under management, with institutions like BlackRock, Fidelity, and Grayscale leading the way.

Discussions about a potential strategic Bitcoin reserve in the U.S. have also been gaining traction. If governments view Bitcoin as a hedge, the capital rotation cycle that previously fueled altcoin rallies could take longer to materialize.

Institutions are now accumulating Bitcoin, keeping liquidity concentrated and limiting capital flow into altcoins.

For an altcoin rally to occur, several factors need to change. Historically, capital in crypto markets has moved in phases, with Bitcoin absorbing liquidity first. Once Bitcoin stabilizes, funds rotate into altcoins, triggering an altcoin season.

Bitcoin’s dominance needs to decline below key support levels to indicate a shift in investor funds. Additionally, catalysts such as Ethereum upgrades, regulatory clarity, or broader adoption could accelerate this transition.

The growing presence of institutional investors is also slowing capital rotation. Institutions tend to make calculated, long-term investments and are less likely to chase short-term trends in altcoins.

If Bitcoin dominance does start to decline, the rotation process is likely to follow the established sequence, with large-cap altcoins moving first, followed by mid-caps and smaller, speculative projects. However, the market is currently in a holding pattern.

The way speculative capital moves in the crypto market has changed, which could be a significant reason why a traditional altcoin season has not yet materialized. The platform Pump.fun has played a role in disrupting the altcoin market, according to analyst Miles Deutscher.

In previous cycles, speculative capital would flow into the top 200 altcoins on centralized exchanges. However, much of that liquidity is now flooding into on-chain, low-cap tokens that often lack proper liquidity.

This shift has created an uneven market dynamic, with early adopters benefiting while many retail investors who entered late have lost money. Unlike in the past, where retail losses were limited to relatively liquid altcoins, this time capital is locked in illiquid meme tokens that have already retraced 70-80%.

The pricing of Bitcoin in the market may not accurately reflect its true value, according to analyst The Bitcoin Therapist. He suggests that a violent repricing event could be imminent, which would further extend Bitcoin’s dominance.

While altcoins struggle with liquidity, Ethereum is quietly seeing significant accumulation from major players. Whales are strategically taking advantage of market uncertainty to accumulate at lower prices.

If institutional ETH accumulation continues, Ethereum could act as a leading indicator for broader altcoin demand. However, until Bitcoin’s dominance weakens, the altcoin recovery remains on hold.

Note: This article is for educational purposes only and does not constitute investment advice.