For years, crypto investors have been conditioned to expect a familiar cycle: Bitcoin rallies first, then Ethereum follows, and finally, the rest of the altcoin market experiences a euphoric surge “altseason.” This belief has been reinforced by recency bias, leading a large portion of market participants to expect a repeat of past cycles. However, I think that the very positioning of these investors is preventing altseason from happening.
Recency bias has blinded the majority of traders and investors to a fundamental shift in market structure. The very people expecting altseason are the ones preventing it. There are a few key points to focus on here as to why I believe this alt season won’t materialize.
- Market Expectations: Markets have a tendency to induce maximum pain on the majority of participants. It’s not because large players manipulate markets and purposefully induce max pain, but “The more people that are already on the bus, the harder it is for it to move.” Since so many speculators are already positioned in this asset, it becomes difficult for prices to continue rising because the majority of capital has already been deployed. Without new buyers, momentum stalls, and the risk of a downturn increases as early entrants take profits and liquidity dries up. Ethereum is at extreme levels of leverage relative to previous years which depicts exactly this, and they’re likely to unwind positions as the market moves higher. The below chart shows that ETH’s on exchange Open Interest has doubled in a relatively short amount of time even as price has declined.
2. Larger Market Capitalization Requires Higher Bullish Sentiment Than in Prior Cycles:
By all fundamental metrics, it’s hard to justify eth’s price today. We all know and understand well that this casino market is driven by speculation, and so most fundamental metrics are ignored, and so in order to drive eth significantly higher, we’d need far higher degress of speculative euphoria. The past two cycles this was driven by eth being the casino chip of choice for launching ponzi tokens, but the market has become saturated with various other chains that also do the same thing.
3. Competition: There’s been so much speculative demand for proof of stake platforms to launch various coins that the market has responded by creating lots of competition to eth. This competition has been succesful and as a result diluted eth’s market share at a time when it needs more inflows than its ever seen in history to push price higher.
4. Early ICO ETH investors: We also have early large investors/founders who were in ETH from the beginning who will continue to take profits, capping upside momentum. As a result, liquidity is constrained, and the market is unable to sustain the kind of eth driven altcoin rally seen in previous cycles.
5. Lack of Interest in New Applications on ETH:
Despite the success of a few L2’s on ETH like polymarket, there’s not a huge inflow of new projects coming to market on ETH to really drive its price. Again, the market incentives are just to launch your own coin because it’s more profitable, and so that’s what we’re getting.
So, we have ETH at a $400B market capitalization which doesn’t provide the same r/r as other coins in the space, extreme market saturation w/ a lot of other PoS blockchains competing for the same type of capital, highest relative degress of OI/leverage on the long side, attention being stolen by coins that will move higher in percentage terms, and early investors who are distributing coins to fund their lifestyles. Even though the techincal setup against btc is the best at this point than it has been in years, I don’t think it’s going to massively outperform as it did in 2017 or 2021.
Unlike Ethereum, certain other altcoins like Litecoin are better positioned to absorb speculative capital. The liquidity conditions are the opposite of what they were in prior cycles, and opposite to coins like ETH. The crypto market which is largely fueled by momentum favors assets with the highest possible percentage gains, as new speculative capital follows where the largest returns are being made. Historically, the crypto market has been driven by a chase for momentum, which is often driven initially by fundamental rising network activity (e.g. BTC by early monetization, eth by early ICO bubble) I’ve thought since 2022, that under loved assets (assets that were hated by speculators/unpopular) with low leverage, relative fundamental undervaluations, relatively low market caps, and high upside potential would eventually outperform. XRP has shown this although it’s tough to do fundamental analysis on the chain, but it was evident from a sentiment standpoint that it was probable to pump as it has the last few months.
Below is LTC’s OI chart over the last few years. Notice it’s the opposite picture of what we see for ETH. Higher price yet lower degrees of leverage, which I’d consider bullish divergence.
I’ve pointed out in prior articles the relative sentiment divergence for LTC between what it actually is versus what the market consensus views it as is what presents the opportunity so refer to those for deeper dive into the speculative opportunity around LTC.
This phenomenon isn’t unique to altcoins. The same fate awaits Bitcoin in the coming years. Historically, during bear markets, Bitcoin dominance would increase as capital flees to perceived safety. However, the speculative hot air in Bitcoin is far greater than any time in its history because its narrative has remained much stronger. Over the years, an increasing amount of off-exchange leverage has built up in Bitcoin (e.g. MSTR), with large players holding positions that will inevitably need to be unwound.
Bitcoin will eventually be pulled by the gravitational weight of its actual monetization level, which is much lower than what its current speculative premium suggests. Just as altseason has failed to materialize due to misaligned market positioning, Bitcoin itself will face the same reality in the next cycle. Investors will continue calling for another Bitcoin bull market out of sheer recency bias, failing to recognize that the conditions that fueled its previous rallies no longer exist in the same form. Most will be trapped in Bitcoin forever because nearly all the popular assumptions and narratives people have bough into around BTC are untrue.
Crypto has been in its “casino phase” for over a decade, driven by speculative cycles, leverage, and reflexivity. This final cycle will mark the end of that phase, as the market gradually shifts toward its true monetization level. Those clinging to past cycles and expecting a return to the old patterns will be left behind. I think the most people will get trapped in this end phase of the crypto cycle because eth and a lot of alts don’t move as they did previously. The game has changed, and those who recognize this early will be the ones who profit the most from the transition.