As 2025 draws to a close, the cryptocurrency market presents an unprecedented split scenario. Bitcoin (BTC), driven by institutional capital, has repeatedly reached new highs, briefly touching $125,000, while Ethereum (ETH) struggles near $2,800, significantly below its all-time high. Altcoins, which once saw indiscriminate rallies, have fallen into an abyss, with most projects down 80-95% from their 2021 peaks and unable to recover even as BTC hits new highs.
This marks a complete departure from the classic narrative of the crypto market over the past decade. The traditional four-year cycle playbook — BTC rises first, ETH follows, altcoins rotate into explosive rallies — appears to have completely failed in 2025. Strategies that veteran players once relied on, akin to carving a boat to seek a sword, have now become a joke of carving a boat to catch fish.
The 2026 outlook reports released by institutions such as Grayscale and CoinShares reinforce a harsh reality: the class solidification within the cryptocurrency market is accelerating. Bitcoin is becoming the digital gold in institutional asset allocation, while altcoins are descending into a twilight of the gods with dwindling liquidity.
Bitcoin’s Empire Without Sunset: Stable price performance rose from about USD 70,000 at the start of the year to a high of USD 125,000 (+78%), and after a pullback, it remains roughly between USD 86,000 and 88,000. Institutional capital inflows: Net inflows into spot ETFs amount to tens of billions of USD, with products like BlackRock’s IBIT dominating the market. Highly concentrated holdings: ETFs hold over one million Bitcoin (BTC), with MicroStrategy owning approximately 670,000 BTC (3.2% of circulating supply).
Bitcoin’s market cap share (Dominance) surged from 50% at the start of 2024 to the current level of 59-60%, reaching its highest point in recent years.
Ethereum’s Midlife Crisis: Gains significantly lag, with the current price around USD 2,800 and far underperforming Bitcoin. Limited institutional interest: Total AUM of spot ETFs is significantly smaller for ETH than for BTC, with periodic outflows observed. Weak on-chain activity: Gas fees have dropped significantly, reflecting sluggish user activity and network demand.
Altcoins’ Twilight of the Gods: The Altcoin Season Index remained below 20 throughout the year, marking the longest historical downturn. Underperformance across the board: Most top-100 projects underperformed Bitcoin this year, with many down more than 80% from their 2021 highs. New listings immediately plummet: It has become common for new coins listed on mainstream centralized exchanges in 2025 to drop in value upon listing, with venture capital-backed tokens becoming toxic.
Liquidity drought: Daily trading volume of altcoins has plummeted over 70% compared to 2021, and insufficient CEX depth means any selling pressure can trigger a collapse. The High FDV, Low Circulation death trap of VC coins: From 2024 to 2025, numerous venture capital-backed projects will launch with extremely high valuations (fully diluted valuations), but with only 5-10% in circulation; retail investors buy at inflated prices, VC and teams face continuous selling pressure from token unlocks over 1-3 years, and prices decline persistently; even if the project has value, it cannot escape its fate. The Ponzi Game of Meme Coins and Market Fatigue: Meme coins in ecosystems briefly attracted capital inflows, but 90% of meme coins became worthless within three months; market fatigue has taken hold, with retail investors distanced from the altcoin market after repeated harvest crises and VC coin meltdowns. CEX’s Liquidity Drought and Death Spiral: Trading volumes on Binance and Coinbase have plummeted by over 70% vs. 2021, with regulatory pressure, user attrition, declining project quality, and insufficient liquidity exacerbating price volatility and deterring investors. Liquidity drought, death spiral, and narrative exhaustion: Homogenization across Layer 1 and Layer 2 projects has reduced differentiation, leaving capital idle in Bitcoin and slowing altcoin resurgence. The Dilemma of Narrative Exhaustion and Homogeneous Competition: No fresh narrative has ignited the market in 2025, making it hard for users to differentiate quality; only Bitcoin dominated liquidity remains substantial. The Liquidity Black Hole of altcoins: Layer 1s and Layer 2s struggle for durable value capture as usage remains concentrated on BTC and select institutional-friendly assets.
II. DEEP MECHANISMS: HOW INSTITUTIONAL ETFS ARE “REWRITING THE RULES OF THE GAME”
Bitcoin has become the “shadow of U.S. technology stocks” with a 30-day correlation coefficient with Nasdaq 100 in the 0.75-0.85 band, while its correlation with gold dropped below 0.2. Fundamental Shift: Bitcoin is no longer “digital gold” (a safe-haven asset) but rather a “digital tech stock” (a risk asset), with pricing power correlated to Wall Street fund managers rather than crypto-native drivers. The “Unidirectional Siphon” Effect of Institutional Buying: Clients of traditional asset managers recognize Bitcoin and avoid altcoins, due to regulatory compliance, liquidity, and brand recognition. Structural solidification of capital flows: In 2025, of the tens of billions flowing into BTC ETFs, over 95% will be locked within the BTC ecosystem, with less than 5% flowing into ETH and altcoins. MicroStrategy’s “infinite ammunition” model: MicroStrategy has accumulated BTC via convertible bonds and share issuances, now holding approximately 670,000 BTC; its stock price often trades at a 2-3x premium to the BTC it holds, enabling more debt issuance to buy BTC and reinforcing BTC’s price through a positive feedback loop. This “corporate hoarding of Bitcoin” siphons funds that could have flowed into altcoins, reinforcing Bitcoin’s dominance. Ethereum lagging behind: Layer 2’s vampire attack complicates ETH value capture; TVLs on Arbitrum, Optimism, Base, and zkSync are large, but L2 tokens (ARB, OP, etc.) have not captured sufficient value for ETH, instead diverting users and capital; gas fees paid in L2 tokens or stablecoins decouple L2 from the Ethereum mainnet. The “Prisoner’s Dilemma” of Staking Returns: Ethereum’s PoS yields around 3-4% annually; liquid staking derivatives like stETH account for a significant share, but staking yields have not driven ETH price higher, and ETH has been downgraded from “programmable money” to “interest-bearing bonds” that struggle to beat Treasuries at roughly 4.5%. Narrative vacuum due to lack of killer applications: DeFi and NFT activity has waned; users have not found economies of scale in AI agents or on-chain gaming; Ethereum’s narrative has become ambiguous, neither a hard currency nor a clear platform for mass consumer apps. The “Liquidity Black Hole” of altcoins intensifies: High FDV, low circulation VC coins face persistent overvaluation; meme coins have little intrinsic value and collapse quickly; on-exchange liquidity has deteriorated, deterring investors. CEX’s liquidity drought and price volatility: Liquidity and depth on major exchanges have fallen, deterring new capital from entering altcoins. The Dilemma of Narrative Exhaustion and Homogeneous Competition: The market is saturated, with limited differentiation among Layer 1s and Layer 2s, making it harder for new entrants to gain traction.
III. INSTITUTIONAL PERSPECTIVE: GRAYSCALE AND COINSHARES’ 2026 FORECAST
Grayscale’s 2026 outlook highlights Bitcoin’s irreversible institutionalization and a tiered structure for digital asset investments. Bitcoin: An Irreversible Institutionalization Process: The report emphasizes macro demand for scarce digital assets and regulatory clarity, with Bitcoin expected to be a cornerstone of institutional stores of value. The 20 millionth Bitcoin is approaching (by March 2026), which Grayscale argues will reinforce scarcity, and institutional allocations are likely to rise from sub-0.5% to higher levels. Grayscale forecasts Bitcoin could reach above $150,000 in a base case in early 2026. Ethereum: “Consolidation Phase Amid Painful Transformation”: Ethereum is undergoing a long transformation toward deeper Layer 2-mainnet integration and institution-grade DeFi and RWA use cases, but Grayscale expects limited price gains in 2026 as these changes validate over 1–2 years. Altcoins: Layered Fate and Survival of the Fittest: Not all tokens will survive the old era; First Tier includes near-institutional-grade assets like Solana, Avalanche, Polygon; Second Tier covers ecosystem and utility tokens; Third Tier encompasses speculative tokens. Grayscale notes significant risk of marginalization for lower tiers, with a notable emphasis that the general rally era for altcoins has ended and only projects with sustainable revenue and regulatory paths will endure. CoinShares: From Speculation to Utility, “Hybrid Finance” Defines the Future: CoinShares presents a more radical view: 2025 is the last year driven by speculation; 2026 shifts toward utility, cash flow, and integration. The Rise of “Hybrid Finance”: Deep integration of public blockchains with traditional finance, enabling new infrastructure that neither side could construct alone. Examples include on-chain money market funds, tokenized government bonds, and private-blockchain issuance of assets. Stablecoins as global payment rails: Regulatory clarity is expected to enable stablecoins to serve as mainstream payment rails, expanding their market capitalization toward $500 billion. Tokenization of Real-World Assets (RWA): Private credit and tokenized government bonds become dominant, with on-chain products offering faster settlement and global distribution; the market for RWA could exceed $500 billion by 2026. The Era of Value Capture: Applications such as Hyperliquid repurchase tokens through revenue, with tokens increasingly valued for cash flow and fundamentals rather than governance alone; institutional dominance grows while retail FOMO wanes. Inflow shifts: In 2025, BTC ETF inflows exceeded $900 billion, signaling irreversible institutional mainstreaming; while retail sentiment remains significantly weaker due to trauma, fatigue, and regulatory uncertainty, with funds preferring mainstream assets like Bitcoin. Price Scenarios for 2026 (CoinShares): Soft landing with BTC above $150,000; Stable Growth with BTC $110,000–$140,000; and a Stagflation/Recession scenario where BTC’s “digital gold” narrative becomes a more dominant pricing driver. Core Forecast: Bitcoin’s market cap share could rise beyond 65%, with institutional dominance in pricing power and liquidity concentrating in utility-driven projects; 90% of existing altcoins may be eliminated as the market converges on real use cases and revenue. Final Verdict: By 2026, digital assets move closer to mainstream finance; utility and hybrid finance define the future, with a selective set of tokens capturing value while the broader market redefines itself around real use, regulatory clarity, and institutional participation.
IV. CORE QUESTION: HAS THE FOUR-YEAR CYCLE TRULY ENDED?
The Nature of Cycles: From “Supply-Driven” to “Demand-Driven”: The four-year cycle previously relied on a halving-driven supply squeeze that fed prices and attracted retail FOMO, fueling orderly progression from BTC to ETH to altcoins. The 2025 shift marks a demand-side restructuring, with institutional funds showing targeted demand for Bitcoin and minimal appetite for altcoins. Are Altcoins Still Viable? The answer is nuanced: most altcoins have no future, but a few sectors may survive. VC tokens with high fully diluted valuations and low circulating supply face structural headwinds; meme coins without practical use tend to vanish; a small set of Layer 1 and Layer 2 assets may endure due to real user bases, robust ecosystems, and regulatory paths. The overall narrative points toward a coming-of-age for crypto, where Bitcoin becomes a core institutional asset and altcoins struggle until they prove sustainable cash flows and real-world utility. Conclusion: The four-year cycle has not ended; it has evolved. Future cycles may resemble a “lame bull market” in which Bitcoin leads, Ethereum struggles to follow, and altcoins stagnate or shrink, until a select few survive and drive renewed phases of growth through real use cases, regulatory clarity, and institutional adoption. The crypto market appears to be transitioning from a retail-driven, speculative cycle to an asset-allocation-driven paradigm dominated by institutions, with value increasingly measured by fundamentals rather than hype.
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