As of April 2025, the weak performance of altcoins in the cryptocurrency market is the result of multiple factors. Combining recent market dynamics and public information, the main reasons can be summarized as follows:
1. VC sell-offs and token supply dilution
1. VC profit-taking
In recent years, venture capital funds (VC) have made significant early investments in altcoin projects such as SOL, AVAX, and APT. As the token unlocking period approaches, VCs continuously sell off to realize profits, creating selling pressure in the market. For example, Solana adds 75,000 new tokens daily (approximately $10 million), while the significant increase in Arbitrum's (ARB) supply has led its price to approach historical lows.
- In the first quarter of 2022, venture capital funds invested over $13 billion, but the market subsequently entered a bear phase, putting pressure on some funds to liquidate, further exacerbating sell-offs.
2. Token unlocking and market dilution
Many altcoins have seen a continuous increase in circulation due to token unlocking plans (such as ecosystem development, team incentives, etc.). For example, both SUI and APT have dropped 60%-70% from their 2024 peaks, partly due to early investors and project teams gradually releasing tokens, diluting market value.
2. Market liquidity contraction and fund diversion
1. Lack of new capital inflow
Overall inflow of funds into the cryptocurrency market has slowed, especially as ETF funds are primarily focused on Bitcoin and Ethereum, leaving altcoins lacking incremental capital support. As of March, the U.S. spot ETH ETF saw a net outflow of $511 million, indicating that institutions prefer to hedge in mainstream assets.
2. Increased Bitcoin dominance
Bitcoin's market capitalization share rose from 60% to 51%, concentrating market funds towards BTC and weakening the appeal of altcoins. Recently, after Bitcoin surpassed $100,000, funds have been more inclined to flow towards 'safe' mainstream assets rather than high-risk altcoins.
3. Macroeconomic and policy uncertainty
1. Federal Reserve policy and geopolitical risks
Although the Federal Reserve may lower interest rates, the tariff policies (such as steel and aluminum tariffs) implemented by the Trump administration have intensified concerns about economic recession. Global risk aversion has increased, with funds flowing towards gold and the dollar, further squeezing the survival space for altcoins.
2. Regulatory games and competitive pressures
Although the advancement of the U.S. stablecoin legislation and the EU MiCA regulation is a long-term positive, the short-term implementation of policies still requires time. Meanwhile, the entry of traditional financial institutions and competition from stablecoin issuers like Tether has diverted market attention from altcoins.
4. Market confidence and retreat from speculation
1. Large-scale liquidations and leverage risks
Since March, the altcoin market has experienced the largest scale of liquidation since the 2022 LUNA collapse, with cumulative liquidations exceeding $10 billion, far surpassing the impact of the FTX incident. High-leverage positions were forcibly liquidated, leading to a spiral decline in prices.
2. Cooling speculative sentiment
The altcoin seasonal index dropped from 87 points in December 2024 to 18 points in March 2025, with only 15 out of the top 100 altcoins outperforming Bitcoin. The speculation around Memecoins (such as DOGE and TRUMP coins) has waned, with the market shifting from FOMO to a wait-and-see approach.
5. Future potential turning points
Despite the current slump, some indicators suggest the market may be poised for a rebound:
- Expectations for technological upgrades: The Ethereum Pectra upgrade (including EIP-3074 and 20 other improvements) may drive a revival in the Layer1 ecosystem, boosting altcoins.
- Liquidity turning point: If the Federal Reserve lowers interest rates, global M2 growth may reactivate market risk appetite.
- Regulatory clarity: The advancement of U.S. strategic Bitcoin reserves and the passing of stablecoin legislation may attract traditional funds into the market.
Summary
The 'stagnation' of altcoins stems from the combined effects of VC sell-offs, liquidity contraction, policy uncertainty, and insufficient market confidence. In the short term, attention should be paid to changes in Bitcoin's dominance and macroeconomic policy adjustments, while in the medium to long term, the focus can be on technological upgrades (such as Ethereum) and structural opportunities brought by regulatory implementation. Investors should cautiously assess project fundamentals and avoid excessive leverage.
