Source: Crypto Compound
Compiled by: Shaw Jinse Finance
The cryptocurrency market does not operate in a straight line — it develops in a spiral. Bitcoin lays the foundation, Ethereum acts as the 'gateway', and other altcoins follow. To capture the next major market movement, understanding this spiral development is crucial. At the core of it all is one indicator: the ETH/BTC ratio.
Let's analyze.
Ethereum: The gateway to risk
Ethereum is the place where traders test their risk appetite.
Bitcoin is often seen as a macro hedge. Institutions view it as digital gold, a store of value, or a hedge against fiat currency depreciation. But Ethereum plays a different role — it is the first step into higher-risk cryptocurrency investments.
When institutions and experienced traders start allocating ETH, it indicates they are filled with confidence. It shows they are willing to step further along the risk curve.
Historical experience shows that once ETH becomes a trading hotspot, liquidity doesn't stop there — it flows into other mainstream currencies and then to the broader altcoin market.
ETH/BTC: Market risk barometer
A ratio governs everything. The ETH/BTC chart is the 'main indicator' of the cryptocurrency risk cycle. When ETH performs better than Bitcoin, it usually aligns with the altcoin cycle. The logic is simple: ETH's strength indicates that the market's demand for risk assets has surpassed Bitcoin.
The bottom of ETH/BTC often marks the beginning of a new market cycle.
The top of ETH/BTC usually coincides with the peak of altcoin euphoria.
It can be seen as a risk barometer: when ETH remains strong and rises relative to BTC, it indicates that funds are willing to flow into higher-risk assets, which is a positive signal.
Liquidity always follows ETH
The impact of ETF capital flows is much larger than people realize.
When capital inflows into the Ethereum ETF, this liquidity does not just stay with Ethereum. It spreads to the spot market, derivatives market, and eventually to altcoin trading pairs. The increase in Ethereum's trading volume means:
Smaller trading spreads.
ETH trading pairs have higher liquidity.
Lower volatility reduces costs when turning to alternative investments.
In simple terms: Ethereum's strength makes it easier and cheaper for funds to flow into altcoins. This is why institutional investments in Ethereum indirectly drive the entire market.
Rotation roadmap: Bitcoin → Ethereum → Mainstream altcoins → Other altcoins
Every cycle has its patterns.
The cryptocurrency cycle is not random. There exists a predictable repeating sequence in past cycles:
Bitcoin leads the way. With Bitcoin establishing trend strength, market confidence increases.
Ethereum follows closely. Institutions and traders are increasing their holdings of ETH, indicating their willingness to take on more risk.
Mainstream altcoins are beginning to rise. Coins like SOL, BNB, AVAX, and ADA are starting to outperform the market.
Medium-sized ecosystem altcoins are rising. Narrative-driven coins related to infrastructure and ecosystems are becoming the focus.
Speculative low market cap altcoins are skyrocketing. Optimistic sentiment at the end of the economic cycle is driving funds into the highly speculative small-cap altcoin market.
Ethereum's performance surpasses Bitcoin, indicating that we are transitioning from the first phase to the second phase — large altcoins are about to take off.
Narrative spillover: Ethereum drives its ecosystem
Ethereum's strong development drives everything related to it.
When Ethereum performs strongly, narratives related to its ecosystem also heat up, including:
DeFi protocols (Uniswap, Aave, Curve).
Layer 2 scaling solutions (Arbitrum, Optimism, zkSync).
Staked and liquid staking tokens (Lido, Rocket Pool).
Projects related to NFTs still primarily operating on Ethereum.
Investors will naturally look for the 'next opportunity.' Projects related to Ethereum are the preferred choice before funds rotate to other chains.
Institutions purchase ETH through ETFs → Altcoins benefit indirectly
The ETF era has changed people's psychology.
Institutional investors purchasing ETH through ETFs not only benefits Ethereum but also changes perceptions of cryptocurrencies. If ETH is recognized as an asset by institutions, then the idea that cryptocurrency is not just Bitcoin will become normalized.
This psychological shift prompts fund allocators to look at other coins. Retail investors follow the same logic: 'If Ethereum (ETH) can be invested in, then what about SOL or AVAX?' The result is that funds flow into the broader altcoin market.
Beware of false signals
Not every Ethereum breakout means the arrival of altcoin season. Ethereum can temporarily lead, but it doesn't necessarily trigger a full rotation. For example, during periods of global liquidity weakness, if ETH/BTC rises, the momentum of altcoins may quickly fade.
The difference between false signals and true signals lies in whether they can be confirmed:
Ethereum's dominance rises with the increase in ETF capital inflow.
As spot demand for Ethereum increases, broader derivatives trading volume is also growing.
Both large and medium-sized altcoins have high participation.
Without this confirmation, Ethereum's strength may just be an illusion.
Important technical levels
The charts tell us the timing.
For years, ETH/BTC has issued reliable signals at key levels. Historically:
Breaking and holding above 0.04 triggered a strong altcoin rebound.
Trends consistently above this area usually mark the beginning of altcoin season.
Along with confirmation of capital inflow into Ethereum's spot market, and an increase in open interest for perpetual contracts of major coins like SOL, BNB, or AVAX, you have a 'green light' signal.
Why this cycle may be stronger
This time the context is different.
Previous altcoin cycles were primarily driven by retail speculation and hype. This time, however, there are structural differences: institutional capital inflow. The launch of the spot Ethereum ETF provides a regulated channel for billions of dollars to flow into Ethereum. Subsequently, this liquidity creates a chain reaction throughout the market.
Combine the following:
Layer-2 scalability matures. Real-world use cases drive ETH demand.
Staking yields. ETH is a productive asset, not just a speculative one.
Narrative spillover. From DeFi's resurgence to cross-chain interoperability.
This round of market movement is not just speculative rotation, but a maturation of market structure, with Ethereum leading on institutional and narrative levels.
What traders should focus on
A clear list helps filter out noise.
To tackle this, pay attention to three main signals:
ETH/BTC ratio. Remains consistently above 0.04.
ETF capital inflow. Demand for Ethereum spot ETFs is strong and stable.
Derivatives confirmation. Positions and trading volumes of mainstream coins like SOL, BNB, and AVAX have increased.
When these factors align, the probability of a sustained rising cycle for altcoins significantly increases.
The story of the altcoin cycle always starts with Ethereum. Bitcoin sets the tone, but Ethereum indicates when the market is ready to take risks. The ETH/BTC ratio is your compass — it shows when to expect funds to shift towards altcoins.
Liquidity comes right after ETH, its ecosystem narrative continues to spread, and institutional confidence in ETH brings a halo effect to the overall market. But remember: not all signals are genuine. Pay attention to confirmations before making large bets.
Driven by the Ethereum ETF, this cycle may be the most powerful one yet.
If Ethereum leads, the rest will follow.
