Bitcoin ETF Reshapes Encryption Investment Landscape, Altcoin Season May Become a Thing of the Past

The emergence of the Bitcoin Exchange-Traded Fund ( ETF ) may completely change the concept of "altcoin season" in the encryption market.

For a long time, the cryptocurrency market has followed a predictable flow of funds. The rise in Bitcoin prices attracts mainstream attention and liquidity, followed by a surge of funds into small-cap tokens. Speculative capital drives up the value of these assets, and traders excitedly refer to it as "altcoin season."

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

In 2024, the spot Bitcoin ETF attracted a record $129 billion in fund inflows. This provides retail and institutional investors with an unprecedented channel for Bitcoin investment, but it also creates a vacuum that siphons off funds from speculative assets. Institutional investors now have a safe, regulated way to access encryption without having to bear the risks of the altcoin market. Many retail investors have also found that ETFs are more appealing than searching for the next mooning token. A well-known Bitcoin analyst even converted their actual Bitcoin holdings into the spot ETF.

This transformation is happening in real time. If funds continue to be locked in structured products, alts will face a reduction in market liquidity and correlation.

Is the altcoin season dead? The rise of structured encryption investments

Bitcoin ETFs provide another option for pursuing high-risk, low-market-value assets. Investors can gain leverage, liquidity, and regulatory transparency through structured products. Retail investors, who were once the main driving force behind altcoin 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.

Institutions are more motivated to avoid altcoin risks. Hedge funds and professional trading platforms used to chase higher returns in low liquidity alts, 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 improved, the motivation to speculate on illiquid and low-volume alts has significantly diminished. This trend has been further reinforced by a record outflow of $2.4 billion in February and the arbitrage opportunities brought about by ETF redemptions, forcing the crypto market into an unprecedented discipline.

Venture Capital Shifts to Cryptocurrency Investment Strategies

Venture capital ( VC ) companies have historically been the lifeline of the altcoin season, 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.

VCs strive to achieve the highest possible return on investment ( ROI ), but the typical range is between 17% and 25%. In traditional finance, the risk-free rate of capital serves as the benchmark for all investments, often represented by the yield on U.S. Treasury bonds.

In the field of encryption, Bitcoin's historical growth rate has served a similar role as a benchmark for expected returns. This has effectively become the risk-free rate for the industry. Over the past decade, Bitcoin's compound annual growth rate (CAGR) averaged 77%, significantly outpacing traditional assets such as gold (8%) and the S&P 500 index (11%). Even in 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 enterprises at this growth rate, and the total ROI over five years will be approximately 1,199%, meaning the investment will increase nearly 12 times.

Although Bitcoin remains volatile, its long-term outstanding performance makes it a fundamental benchmark for assessing risk-adjusted returns in the encryption space. With the increase of arbitrage opportunities and the reduction of risks, VCs may choose safer investments.

In 2024, the number of VC transactions decreased by 46%, although overall investment volume saw a rebound in the fourth quarter. This marks a shift towards more selective, high-value projects rather than speculative funding.

Web3 and AI-driven encryption startups continue to attract attention, but the days of providing indiscriminate funding for every token with a white paper may be numbered. If venture capital further shifts to structured investments through ETFs, rather than direct investments in high-risk startups, new altcoin projects may face serious consequences.

At the same time, the few altcoin projects that have entered the attention of institutional investors are exceptions, not the norm. Even crypto index ETFs aimed at gaining broader exposure struggle to attract meaningful capital inflows, highlighting that capital is concentrated, not dispersed.

Overproduction Issues and New Market Realities

The market landscape has changed. The overwhelming number of altcoins competing for attention has led to saturation issues. According to statistics from data analysis platforms, there are currently over 40 million types of tokens on the market. An average of 1.2 million new tokens are launched each month in 2024, and over 5 million tokens have been created since the beginning of 2025.

With institutions leaning towards structured investments and a lack of retail-driven speculative demand, liquidity is no longer flowing into altcoins as it used to.

This reveals a harsh reality: most alts will not survive. The CEO of a data analytics platform recently warned that without a fundamental change in market structure, the majority of these assets are unlikely to survive. "The era of everything going up is over," he said in a recent social media post.

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 wane before turning to alts may no longer apply.

The encryption market is no longer what it used to be. The days of easy, periodic alts surges 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 of the entire market.

For those who have based their assumptions on the idea that altcoin booms follow each rise of Bitcoin, it may be time to reconsider. As the market matures, the rules may have changed.