Original Author: David Duong, Coinbase
Reposted by: Daisy, Mars Finance
Core Summary
We remain optimistic about the outlook for the third quarter of 2025, but our view on the altcoin season has evolved. We believe that the current market conditions indicate that as September approaches, the market may shift to a full altcoin season—our usual definition of an altcoin season is that at least 75% of the top 50 altcoins by market cap outperform Bitcoin over the last 90 days.
Many argue whether the Federal Reserve's rate cut in September will lead to a peak in the cryptocurrency market, but we do not think so. Currently, there is a large amount of retail funds idling in money market funds (over $7 trillion) and other channels, and we believe that the Federal Reserve's easing policies may release more retail funds into the market in the medium term.
Focus on Ethereum (ETH). The overall sluggishness of the 'CoinMarketCap altcoin season index' compared to the 50% growth in the total market capitalization of altcoins since early July largely reflects increased institutional interest in ETH. This is due to demand from digital asset treasuries (DAT) and the growth of stablecoin and real-world asset narratives.
Although tokens such as ARB, ENA, LDO, and OP exhibit higher beta values in daily returns against ETH, it seems that only LDO has significantly benefited from the recent rise in ETH (up 58% so far this month). Historically, due to the nature of liquid staking, Lido has provided a relatively direct exposure to ETH. Additionally, we believe LDO's rise is supported by the SEC's statement—that under certain conditions, liquid staking tokens do not constitute securities.
The Altcoin Season is Coming
Bitcoin's market dominance has decreased from 65% in May 2025 to about 59% in August 2025, indicating that funds have begun to rotate into altcoins. Although the total market capitalization of altcoins has increased by over 50% since early July (reaching $1.4 trillion as of August 12), the CoinMarketCap 'altcoin season index' is still at a low level of around 40, far below the historical threshold of 75 that defines an altcoin season. We believe that the current market conditions are beginning to indicate that as September approaches, the market may shift to a full altcoin season.
Odaily Note: The proportion of unclosed contracts in altcoins has surged.
Our optimistic outlook is based on a macro perspective and expectations for significant regulatory progress. We previously pointed out that changes in the global M2 money supply index often lead Bitcoin prices by 110 days, pointing to a potential new round of liquidity by the end of Q3 2025 or early Q4. This is crucial, as narratives seem to still revolve around large coins, while altcoin support mainly comes from retail investors.
Notably, the current size of US money market funds has reached a record $7.2 trillion, while cash balances decreased by $150 billion in April. We believe this has driven strong performance in crypto assets and risk assets in the following months. Interestingly, since June, cash balances have recovered by over $200 billion, contrasting with the rise in cryptocurrency prices during the same period. Typically, rising cryptocurrency prices are negatively correlated with cash balances.
Odaily Note: The asset size of money market funds has exceeded $7 trillion.
We believe that this unprecedented level of cash reserves reflects the opportunity cost of missed chances, primarily due to:
1. Increased uncertainty in traditional markets (triggered by trade conflicts and other issues);
2. Market valuations are at high levels;
Ongoing concerns about economic growth.
However, as the Federal Reserve is set to implement interest rate cuts in September and October, we believe the attractiveness of money market funds will begin to diminish, and more funds will flow into cryptocurrencies and other high-risk asset classes.
Indeed, our liquidity-weighted Z-score indicator for cryptocurrencies (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 a clearer regulatory environment.
Odaily Note: There are preliminary signs of a recovery in cryptocurrency liquidity.
ETH Beta Options
Meanwhile, the divergence between the 'altcoin season index' and 'total market capitalization of altcoins' mainly reflects growing institutional interest in Ethereum (ETH)—this trend is supported by demand from digital asset treasuries (DAT) and narratives around stablecoins and real-world assets (RWA). Bitmine Immersion Technologies alone has purchased 1.15 million ETH and plans to continue increasing its holdings with up to $20 billion in financing. Another leading ETH DAT, Sharplink Gaming, currently holds about 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 collectively hold about 2.95 million ETH, accounting for over 2% of the total ETH supply (120.7 million).
Among the higher beta options relative to ETH, ARB, ENA, LDO, and OP rank at the top, but it seems that only LDO has significantly benefited from the recent rise in ETH (up 58% so far this month). Due to the nature of liquid staking, Lido has historically provided relatively direct exposure to ETH, and currently, LDO's beta value relative to ETH is 1.5—beta values greater than 1.0 mean that the asset is theoretically more volatile than the benchmark, potentially amplifying gains and losses.
Odaily Note: Some altcoins' beta values relative to ETH.
We believe that the price increase of LDO is also supported by the SEC's statement on liquid staking on August 5. Staff from the SEC's corporate finance division pointed out that when the services provided by liquid staking entities are essentially 'ministerial' operations and staking rewards are distributed 1:1 as per the agreement, the relevant activities do not constitute a securities offering or sale. However, it should be noted that: yield guarantees, self-restaking, or additional return mechanisms may still trigger securities classification. At the same time, the current guidance only represents the staff's views—future committee position changes or litigation could alter this interpretation.
Conclusion
We maintain a constructive outlook for the third quarter of 2025, but our assessment of the altcoin season has evolved. The recent decline in Bitcoin's dominance shows that funds are beginning to rotate into altcoins, but a full altcoin season has not yet formed. However, as the total market capitalization of altcoins rises and the 'altcoin season index' shows early positive signals, we believe the market is creating conditions for a more mature altcoin season that may come in September. This optimistic judgment is based on macro factors as well as expectations for regulatory progress.
