Original title: Monthly Outlook: Altcoin Season Cometh
Original author: David Duong, Coinbase
Original translation: Azuma, Odaily Planet Daily
Core Summary
· We remain optimistic about the outlook for the third quarter of 2025, but our view on altcoin season has evolved. We believe the current market conditions suggest that as September approaches, the market may turn towards a full altcoin season - our typical definition of altcoin season is that at least 75% of the top 50 altcoins by market cap have outperformed Bitcoin in the last 90 days.
· Many people debate whether the Federal Reserve's rate cut in September has led to a local peak in the cryptocurrency market, but we do not think so. There is currently a large amount of retail funds sitting idle in money market funds (over $7 trillion) and other channels. We believe that the Federal Reserve's easing policy may release more retail funds to participate in the market in the medium term.
· Focus on Ethereum (ETH). The disparity between the overall sluggishness of CoinMarketCap's altcoin season index and the 50% increase in the total market cap of altcoins since early July largely reflects increased institutional interest in ETH. This is due to the demand for Digital Asset Treasuries (DAT) and the growing narratives around stablecoins and real-world assets.
· Although tokens like ARB, ENA, LDO, and OP show higher beta values against ETH's daily returns, it seems that only LDO has significantly benefited from the recent ETH price increase (up 58% so far this month). In the past, due to the nature of liquidity staking, Lido has provided a relatively direct exposure to ETH. Additionally, we believe that LDO's rise is supported by the U.S. SEC's statement — under certain conditions, liquidity staking tokens do not constitute securities.
Altcoin Season Approaches
Bitcoin's market dominance has fallen from 65% in May 2025 to about 59% in August 2025, indicating that funds have begun to rotate into altcoins. Although the total market cap of altcoins has increased by over 50% since early July (reaching $1.4 trillion as of August 12), CoinMarketCap's 'altcoin season index' is currently still around 40, well below the 75 threshold that historically defines altcoin season. We believe that current market conditions have begun to indicate that as September approaches, the market may turn towards a full altcoin season.
Odaily Note: The proportion of unclosed contracts for altcoins has surged.
Our optimistic outlook is based on a macro perspective and expectations of significant regulatory progress. We have previously pointed out that changes in the global M2 money supply index often lead Bitcoin prices by 110 days, indicating a new round of liquidity may emerge around the end of Q3/Q4 2025. This is crucial because, for institutional funds, the narrative still seems to revolve around large coins, while the support for altcoins mainly comes from retail investors.
Notably, the size of U.S. money market funds has reached a record $7.2 trillion, with cash balances declining by $150 billion in April. We believe this has driven strong performances of crypto assets and risk assets in the following months. However, interestingly, cash balances have rebounded by over $200 billion since June, contrasting with the rise in cryptocurrency prices during the same period. Typically, the rise in cryptocurrency prices tends to be negatively correlated with cash balances.
Odaily Note: The assets in money market funds have surpassed $7 trillion.
We believe that this unprecedented cash reserve reflects the opportunity cost of missed opportunities, mainly due to:
1. Increased uncertainty in traditional markets (triggered by issues such as trade conflicts);
2. Market valuations are high;
3. Ongoing concerns about economic growth.
However, as the Federal Reserve is about to implement rate cuts in September and October, we believe the attractiveness of money market funds will begin to diminish, leading more funds to flow into cryptocurrencies and other high-risk asset classes.
In fact, our cryptocurrency liquidity-weighted Z-score indicator (based on factors such as net issuance of stablecoins, spot and perpetual contract trading volumes, order book depth, and free float) shows that liquidity has begun to recover in recent weeks after six months of decline. The growth of stablecoins is partly due to the increasingly clear regulatory environment.
Odaily Note: There are preliminary signs of recovery in cryptocurrency liquidity.
ETH's Beta Options
At the same time, the divergence between the 'altcoin season index' and 'total market cap of altcoins' mainly reflects the growing interest of institutions in Ethereum (ETH) — a trend supported by the demand for Digital Asset Treasuries (DAT) and the narratives surrounding stablecoins and Real World Assets (RWA). One company, Bitmine Immersion Technologies, has purchased 1.15 million ETH and still plans to continue buying through up to $20 billion in funding. Another leading ETH DAT, Sharplink Gaming, currently holds approximately 598,800 ETH.
Odaily Note: The amount of ETH held by some digital asset treasury companies.
As of August 13, the latest data shows that leading ETH treasury companies hold approximately 2.95 million ETH, accounting for over 2% of the total ETH supply (120.7 million ETH).
Among the high beta options relative to ETH's returns, ARB, ENA, LDO, and OP top the list, but it seems that only LDO has significantly benefited from the recent ETH price surge (up 58% so far this month). Due to the nature of liquidity staking, Lido has historically provided relatively direct exposure to ETH, and currently, LDO's beta value relative to ETH is 1.5 — a beta value greater than 1.0 means that this asset theoretically has more volatility than the benchmark, potentially amplifying gains and losses.
Odaily Note: Some altcoins have seen a surge in their beta values relative to ETH.
We believe that the price increase of LDO is also supported by the U.S. SEC's statement regarding liquidity staking on August 5. SEC corporate finance staff indicated that when services provided by liquidity staking entities are essentially 'ministerial' operations and staking rewards are distributed 1:1 as per the agreement, the related activities do not constitute a securities offering or sale. However, it should be noted that yield guarantees, autonomous re-staking, or additional return mechanisms may still trigger securities classification. Furthermore, the current guidance only represents staff views — future changes in committee positions or legal cases may alter this interpretation.
Conclusion
We maintain a constructive outlook for Q3 2025, but our judgment on altcoin season has evolved. The recent decline in Bitcoin's dominance indicates that funds are beginning to rotate into altcoins, but a full altcoin season has not yet formed. However, as the total market cap of altcoins rises and the 'altcoin season index' shows early positive signals, we believe the market is creating conditions for a potentially more mature altcoin season in September. This optimistic assessment is based on macro factors as well as expectations for regulatory progress.
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