Bitcoin ETF changes the encryption investment landscape, traditional "alts season" faces challenges

The emergence of Bitcoin exchange-traded products (ETFs) may fundamentally change the long-standing concept of "alts season" in the encryption market.

For many years, the encryption market has followed a predictable pattern of capital rotation. The rise in Bitcoin prices attracts mainstream attention and liquidity, followed by a surge of funds into other cryptocurrencies. Speculative capital flows into low market cap assets, driving up their value, a phenomenon referred to by traders as "altcoin season."

However, this cycle, which was once taken for granted, is showing signs of structural change.

In 2024, spot Bitcoin ETFs attracted a record inflow of $129 billion. This provides retail and institutional investors with an unprecedented avenue for Bitcoin investment, while also creating a vacuum that draws funds away from speculative assets. Institutional investors can now access cryptocurrencies in a secure, regulated manner without bearing the high risks of other crypto asset markets. Many retail investors have also found ETFs more attractive than searching for potentially high-yield tokens. Even a well-known Bitcoin analyst has swapped their actual Bitcoins for the spot ETF.

This transition is happening in real-time. If funds continue to be locked in structured products, other cryptocurrencies will face challenges of reduced market liquidity and correlation.

The Rise of Structured Encryption Investments

The Bitcoin ETF provides another option for chasing high-risk, low-market-cap assets. Investors can now gain leverage, liquidity, and regulatory transparency through structured products. Retail investors, who were once the main driving force behind small cryptocurrency speculation, can now directly invest in Bitcoin and Ethereum ETFs. These tools eliminate the concerns of self-custody, reduce counterparty risk, and align with traditional investment frameworks.

Institutional investors are more motivated to avoid risks associated with small cryptocurrencies. Hedge funds and professional trading platforms used to chase higher returns in low liquidity small cryptocurrencies, but can now deploy leverage through derivatives or gain exposure on traditional financial tracks via ETFs.

As the ability to hedge through options and futures has increased, the motivation to speculate on small cryptocurrencies with poor liquidity and low trading volume has significantly diminished. This trend was further strengthened by a record $2.4 billion outflow of funds in February and the arbitrage opportunities created by ETF redemptions, forcing the crypto market into an unprecedented discipline.

The Shift in Venture Capital Strategies

Venture capital (VC) firms have traditionally been the lifeline of the small altcoin market, injecting liquidity into emerging projects and weaving grand narratives for new tokens. However, as leverage becomes more accessible, capital efficiency has become a key priority, and VCs are rethinking their strategies.

In the field of encryption, Bitcoin's historical growth rate has served as a benchmark for expected returns. Over the past decade, Bitcoin's compound annual growth rate (CAGR) has averaged 77%, significantly outpacing traditional assets like gold (8%) and the S&P 500 index (11%). Even over the past five years, including both bull and bear market conditions, Bitcoin's CAGR has remained at 67%.

Based on this, venture capitalists deploy capital in Bitcoin or Bitcoin-related businesses at this growth rate, and the total investment return over five years will be approximately 1,199%, meaning the investment will increase nearly 12 times.

In 2024, the number of VC transactions decreased by 46%, although overall investment volume rebounded in the fourth quarter. This marks a shift towards more selective, high-value projects rather than speculative funds. If venture capital further shifts towards structured investments through ETFs rather than direct investments in high-risk startups, new small crypto projects may face severe consequences.

Market Saturation and New Reality

The market landscape has changed. The sheer number of small cryptocurrencies competing for attention has led to saturation issues. According to data analysis, there are currently over 40 million tokens in the market. An average of 1.2 million new tokens is launched every month in 2024, and more than 5 million tokens have been created since the beginning of 2025.

As institutions lean towards structured investments and the lack of retail-driven speculative demand, liquidity is no longer flowing into small cryptocurrencies like it used to. This reveals a harsh reality: most small cryptocurrencies will not survive. Some analysts have warned that without a fundamental change in market structure, most of these assets are unlikely to survive.

In an era where funds are locked in ETFs and perpetual contracts rather than freely flowing into speculative assets, the traditional strategy of waiting for Bitcoin's dominance to weaken before turning to other alts may no longer be applicable.

The encryption market is no longer what it used to be. The days of easy, cyclical small altcoin rises may be replaced by an ecosystem where capital efficiency, structured financial products, and regulatory transparency determine the flow of funds. ETFs are changing the way people invest in Bitcoin and fundamentally altering the liquidity distribution across the entire market.

For those who base their assumptions on the hypothesis that a small altcoin boom follows each Bitcoin rise, it may be time to reconsider. As the market matures, the rules may have changed.