• Coinbase expects that the third quarter of 2025 could witness the start of a true altcoin season as Bitcoin dominance declines and altcoin market capitalization rises.

  • A reduction in interest rates by the Federal Reserve could free up $7.2 trillion in cash from money market funds, enhancing potential flows from retail into altcoins.

  • Liquidity metrics and gains from Ethereum-linked tokens bolster the setup for a broad altcoin rally in the coming months.

With optimism for the third quarter of 2025, Coinbase expects the cryptocurrency market to shift into a full altcoin season.

While current conditions provide a promising setup for the upcoming altcoin season, investors are advised to closely monitor market factors and macroeconomic developments in the coming months.

A report from Coinbase Institutional indicated that the market is nearing the threshold for a comprehensive altcoin season as September approaches.

Specifically, market dominance reached 65% in May but dropped to about 59% in August. This is a clear sign that capital is flowing into altcoins. At the same time, the total market capitalization of all altcoins has risen by over 50% since early July, reaching about $1.4 trillion.

The dominance ratio of open interest in altcoins.

The report stated, "We believe that the current market conditions are beginning to signal the potential for a full rotation into altcoin season as we approach September."

Although the altcoin season index remains relatively low at around 40–45, below the 75 threshold needed to officially declare an altcoin season, there is cautious optimism. Prevailing macroeconomic trends and market signals are setting the stage for a strong rally in the third quarter of 2025.

Altcoin season index.

Coinbase highlighted a key factor being the possibility of the Federal Reserve cutting interest rates in September or October. Cash remains "trapped" in money market funds, totaling over $7.2 trillion, a record high. If yields on these funds decline, fund managers could free up retail capital and direct it towards riskier assets. Market forces put altcoins in a prime position to benefit first from this potential shift.

Money market fund assets.

Meanwhile, Ethereum emerges as a focal point for capital rotation. The market capitalization of ETH has risen by about 50% since early July, driven by strong demand from digital asset treasuries. This growth is bolstered by the narrative surrounding stablecoins and real-world assets (RWAs).

Institutions like Bitmine Immersion Technologies acquired up to 1.15 million ETH, while funds collectively hold nearly 3 million ETH, accounting for over 2% of the global supply. At the same time, Ethereum-linked tokens, including Arbitrum, Ethena, Lido DAO, and Optimism, have seen notable gains. The 58% monthly increase for Lido may be attributed to new legislation recognizing staking tokens as non-securities.

Beta of selected altcoins against daily ETH returns.

Coinbase also points to signs of liquidity recovery, indicating that the market may be ready for its next bullish phase. Indicators like trading volume, order book depth, and stablecoin issuance are rebounding after six months of decline. This is a crucial signal supporting potential capital flows into altcoins.

In conclusion, Coinbase maintains an optimistic outlook for the third quarter of 2025, particularly as macroeconomic, regulatory, and market conditions gradually align. As September approaches, these factors contribute to a strong foundation for a genuine altcoin season. However, for it to be officially announced, the altcoin season index must exceed 75—indicating a broad and sustainable market recovery.

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