Source: Coinbase Research; Translated by Golden Finance.
Key Points:
Despite changes in the view of altcoin season, Coinbase's outlook for the third quarter of 2025 remains optimistic. Coinbase believes that as September approaches, the current market conditions may signal that altcoin season is about to arrive in full swing. (A common definition of altcoin season is that at least 75% of the top 50 altcoins by market capitalization have outperformed BTC in the past 90 days.)
Many argue whether the Fed's interest rate cut in September means a local peak for the cryptocurrency market. Coinbase believes this is not the case. Given that a large amount of retail capital is sitting on the sidelines in money market funds (over $7 trillion) and other areas, Coinbase believes the Fed's easing policy could unleash more potential for retail participation in the medium term.
Focus on ETH. (1) The CoinMarketCap altcoin season index is significantly low, while (2) the total market capitalization of altcoins has grown by 50% since early July; the difference between these two largely reflects growing interest from institutional investors in ETH. This is supported by demand for digital asset treasuries (DAT) and increasing discussions around stablecoins and real-world assets.
Tokens such as ARB, ENA, LDO, and OP all have beta values higher than ETH, but it seems that only LDO has benefited from the recent rise in ETH, with a monthly cumulative increase of up to 58%. Historically, given the nature of liquid staking, Lido has provided relatively direct ETH exposure. Additionally, we believe LDO's rise is also supported by the SEC's statement, which indicated that liquid staking tokens do not constitute securities under certain conditions.
Entering altcoin season.
Bitcoin's market dominance has declined from 65% in May 2025 to about 59% in August 2025, marking the early stage of capital rotation towards altcoins.
The CoinMarketCap altcoin season index is currently at 44, far below the historical threshold of 75 that defines altcoin season.
Despite the market capitalization of altcoins rising over 50% since early July, reaching $1.4 trillion as of August 12, we believe the current market conditions are beginning to indicate that altcoin season may fully unfold as September approaches.
Figure 1. Surge in open contract dominance of altcoins.
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 signals a potential new wave of upward liquidity around the end of the third quarter/beginning of the fourth quarter of 2025. This is crucial, as the market seems to continuously focus on blue-chip tokens for institutional capital, which we believe means that support for altcoins mainly comes from retail investors.
Notably, approximately $7.2 trillion is currently held in U.S. money market funds, a historic high. (See Figure 2.) In April, cash balances in U.S. money market funds dropped by $150 billion, which we believe drove strong performance in cryptocurrencies and risk assets in the subsequent months. However, it is curious that since June, cash balances in U.S. money market funds have increased by over $200 billion, which is in stark contrast to the appreciation trend we saw in cryptocurrencies during the same period. Typically, there is often an inverse relationship between rising cryptocurrency prices and cash balances.
Figure 2. Assets in money market funds have ballooned to over $7 trillion.
We believe this unprecedented cash reserve represents an opportunity cost that has been missed due to: (1) increased uncertainty in traditional markets (caused by trade conflicts, etc.); (2) overvaluation of the market; (3) persistent concerns about economic growth. However, as the Federal Reserve approaches interest rate cuts in September and October, we believe the appeal of money market funds will begin to wane, and more funds will be allocated to cryptocurrencies and other higher-risk asset classes.
In fact, our weighted z-score measurement of cryptocurrency liquidity, based on factors such as net issuance of stablecoins, spot and perpetual contract trading volumes, order book depth, and free float, indicates that liquidity has begun to recover in recent weeks after six months of decline. (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 difference between the altcoin season index and the total market capitalization of altcoins largely reflects growing interest from institutional investors in ETH, driven by demand for digital asset treasuries (DAT) and increasing 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 power to $24.5 billion. (The previous leader in ETH DAT, Sharplink Gaming, currently holds about 598,800 ETH.)
Figure 4. ETH held by some digital asset treasury companies.
As of the latest data on August 13, 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 relative beta against ETH, tokens such as ARB, ENA, LDO, and OP are at the top, but it seems that only LDO has benefited from the recent rise in ETH, with a monthly cumulative increase of 58%. Historically, due to the nature of liquid staking, Lido provides relatively direct ETH exposure, 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 some altcoins relative to ETH (3-month window).
Additionally, we believe that LDO's rise is bolstered by the SEC's statement on August 5 regarding liquid staking. SEC staff indicated that when the services provided by liquid staking entities are primarily 'service-oriented' and the rewards from staked agreements are transferred on a one-to-one basis, liquid staking activities do not involve the issuance or sale of securities. However, yield guarantees, discretionary re-staking, or additional reward programs may still trigger securities issuance status. Please note that the current guidance only represents staff views—future SEC adjustments or litigation may change this interpretation.
Conclusion.
Coinbase's outlook for the third quarter of 2025 remains optimistic, although the view on altcoin season has changed. The recent decline in Bitcoin's dominance indicates that funds are currently in the early stages of rotating towards altcoins rather than fully entering altcoin season.
However, with the rise in altcoin market capitalization and the positive signals early in the altcoin season index, we believe that as September arrives, the market may enter a more mature altcoin season. Macro factors and anticipated regulatory progress support our optimistic view.
