Source: Coinbase Research; compiled by Golden Finance
Key points:
Despite changes in views on the altcoin season, Coinbase remains optimistic about Q3 2025. Coinbase believes that as September approaches, the current market conditions may signal the imminent arrival of the altcoin season. (A common definition of the altcoin season is when at least 75% of the top 50 altcoins by market cap have outperformed BTC over the past 90 days.)
Many people argue whether the Federal Reserve's interest rate cut in September means that the cryptocurrency market has peaked locally. Coinbase does not believe so. Given that a significant amount of retail capital is on the sidelines in money market funds (over $7 trillion) and other areas, Coinbase believes that the Fed's easing policies may unleash more potential for retail participation in the medium term.
Focus on ETH. (1) The Altcoin Season Index from CoinMarketCap is significantly low, while (2) the total market cap of altcoins has increased by 50% since early July. The disparity between these two largely reflects the growing interest of institutional investors in ETH. This is attributed to the demand for Digital Asset Treasury (DAT) and the increasing discussions around stablecoins and real-world assets.
Tokens such as ARB, ENA, LDO, and OP have beta values higher than ETH, but it seems only LDO has benefited from the recent rise in ETH, with a monthly cumulative increase of 58%. In the past, due to the nature of liquid staking, Lido provided a relatively direct exposure to ETH. Additionally, we believe LDO's rise is supported by the recent statement from the U.S. SEC, which states that liquid staking tokens do not constitute securities under certain conditions.
Entering the altcoin season
Bitcoin's market dominance has decreased from 65% in May 2025 to about 59% in August 2025, marking the early stage of capital rotating into altcoins.
The Altcoin Season Index from CoinMarketCap is currently at 44, far below its historical threshold of 75 that defines an altcoin season.
Although the market cap of altcoins has climbed over 50% since early July, reaching $1.4 trillion as of August 12, we believe that the current market conditions have begun to hint that, as September approaches, the altcoin season may fully unfold.
Figure 1. Surge in the dominance rate of altcoins' open contracts
Coinbase's constructive outlook is based on our macro perspective and expectations of significant regulatory progress. We previously noted that the global M2 money supply index leads Bitcoin by 110 days and suggests a potential new wave of upward liquidity by the end of Q3/beginning of Q4 2025. This is crucial as the market seems to continuously focus on blue-chip tokens for institutional capital, leading us to believe that support for altcoins primarily comes from retail investors.
Notably, approximately $7.2 trillion is currently held in U.S. money market funds, reaching a historical high. (See Figure 2.) In April, cash balances in U.S. money market funds decreased by $150 billion, which we believe prompted strong performances in cryptocurrencies and risk assets in the following months. However, strangely, since June, cash balances in U.S. money market funds have increased by over $200 billion, which is in stark contrast to the cryptocurrency appreciation trend we observed during the same period. Typically, rising cryptocurrency prices tend to have an inverse relationship with cash balances.
Figure 2. Assets in money market funds have swollen to over $7 trillion
We believe that this unprecedented cash reserve indicates missed opportunity costs due to: (1) increased uncertainty in traditional markets (caused by trade conflicts, etc.); (2) overvaluation in the market; (3) persistent concerns about economic growth. However, as the Fed's interest rate cuts approach in September and October, we believe the appeal of money market funds will begin to weaken, and more capital will be allocated to cryptocurrencies and other higher-risk asset classes.
In fact, based on factors such as net issuance of stablecoins, spot and perpetual contract trading volumes, order book depth, and free float, our weighted z-score measurement of cryptocurrency liquidity indicates that liquidity has begun to rebound after six months of decline in recent weeks. (See Figure 3.) The growth of stablecoins is partly due to a clearer regulatory environment for these assets.
Figure 3. New signs of recovery in cryptocurrency liquidity
ETH Test
Meanwhile, the disparity between the altcoin season index and the total market cap of altcoins largely reflects the growing interest of institutional investors in ETH, attributed to the demand for Digital Asset Treasury (DAT) and the increasing heated discussions around stablecoins and real-world assets. BitMine alone has purchased 1.15 million ETH, with a new round of financing amounting to $20 billion, bringing its total purchasing capacity to $24.5 billion. (The previous leader in ETH DAT, Sharplink Gaming, currently holds approximately 598,800 ETH.)
Figure 4. ETH held by certain digital asset treasury companies
As of August 13, the latest data shows that top ETH treasury companies control about 2.95 million ETH, accounting for over 2% of the total ETH supply (120.7 million ETH). (See Figure 4.)
In terms of beta relative to ETH, tokens such as ARB, ENA, LDO, and OP are at the forefront, but it seems only LDO has benefited from the recent rise in ETH, with a monthly cumulative increase of 58%. In the past, due to the nature of liquid staking, Lido provided relatively direct exposure to ETH, and currently, LDO's beta relative to ETH is 1.5. (A beta above 1.0 indicates that the asset theoretically has greater volatility than the benchmark — this can amplify both gains and losses.)
Figure 5. Beta values of certain altcoins relative to ETH (3-month window)
Moreover, we believe that LDO's rise is benefited by the SEC's statement on liquid staking on August 5. SEC staff stated that when the services provided by liquid staking entities are primarily 'service-oriented' and the rewards from protocol staking are transferred on a one-to-one basis, liquid staking activities do not involve the issuance or sale of securities. However, guaranteed returns, discretionary re-staking, or additional rewards programs may still trigger securities issuance status. Please note that the current guidance only represents the views of the staff — future SEC adjustments or litigation may change this interpretation.
Conclusion
Coinbase remains optimistic about Q3 2025, although its views on the altcoin season have changed. The recent decline in Bitcoin's dominance indicates that capital is currently rotating into altcoins in the early stages, rather than fully entering the altcoin season.
However, as the market cap of altcoins rises and positive signals are early shown by the altcoin season index, we believe that as September approaches, the market may enter a more mature altcoin season. Macroeconomic factors and anticipated regulatory progress support our optimistic view.
