In the past year, the cryptocurrency market has shown a stark contrast to the U.S. stock market, with the S&P 500 and Nasdaq 100 indices achieving cumulative gains of 47% and 49% over two years, respectively, while the Altcoin index has been deeply entrenched in a downward trend. The crypto market is undergoing a structural shift towards capital concentrating in high-quality assets.
The S&P 500 is projected to rise by 25% and 17.5% in 2024 and 2025, respectively, while the Nasdaq 100 is expected to increase by 25.9% and 18.1% during the same period, with a maximum drawdown of only about 15%.
In contrast, the altcoin market has seen the CoinDesk 80 index (which tracks 80 cryptocurrencies outside the top 20) plummet by 46.4% in the first quarter of 2025, and as of mid-July, it has dropped 38% year-to-date.
The MarketVector Digital Asset 100 Small Cap Index has also fallen to its lowest point since November 2020 by the end of 2025, with the total market capitalization of cryptocurrencies evaporating by over $1 trillion.
The core of this contrast lies in the "imbalance of returns under high correlation." The CoinDesk 5 index (tracking mainstream coins like Bitcoin) has a correlation of up to 0.9 with the CoinDesk 80, showing synchronized movements but vastly different returns, with the former rising by 12%-13% during the same period while the latter has dropped nearly 40%.
The disparity in risk-adjusted returns is even more pronounced. The volatility of the Altcoin index is comparable to or even higher than that of U.S. stocks, yet it has recorded significant negative returns, with a Sharpe ratio that is negative; meanwhile, the Sharpe ratio of U.S. stock indices remains positive.
Over the past five years, the MarketVector Small Cap Crypto Index has a return rate of -8%, while the Large Cap Crypto Index has surged by 380%, clearly indicating that institutional funds are voting with their feet.
According to Kaiko data, although Altcoin trading volumes have rebounded to 2021 levels, 64% of this volume is concentrated in the top 10 Altcoins, with "institutional-grade" assets like Solana and XRP being among the few winners due to clearer regulatory frameworks.
Funds have not exited the crypto market; rather, they are flowing upwards along the quality curve, with Bitcoin and Ethereum spot ETFs continuously attracting institutional participation.
For investors, the current diversified allocation to Altcoins has lost its significance. The nearly 0.9 correlation between the CoinDesk 5 and CoinDesk 80 means that holding Altcoins does not provide diversification benefits but instead incurs additional risks.
The sharp drop in the "Altcoin Season" index from 88 to 16 by the end of 2024 further confirms its tactical trading nature rather than being a long-term allocation asset.
The current market logic has completely shifted: capital no longer favors niche Altcoins but instead focuses on high-quality targets with clear regulations and ample liquidity.
Bitcoin and Ethereum have gained institutional recognition through ETFs, while U.S. stocks attract funds with stable returns, both of which have squeezed the survival space for inferior Altcoins.
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