Is the Altcoin Season Officially Dead? Small-Cap Crypto Plummets to a Four-Year Low
Since the beginning of 2024, a striking divergence has emerged between the performance of traditional stock markets and the broader cryptocurrency landscape. While the S&P 500 and Nasdaq-100 have enjoyed robust gains, altcoins – cryptocurrencies other than Bitcoin – have largely struggled, with small-cap altcoins experiencing a particularly brutal downturn. This raises a critical question for investors: has the era of altcoin outperformance ended, and are smaller crypto assets simply mirroring the risk profile of equities without offering comparable returns? This article delves into the data, analyzing key indices and trends to determine whether the “altcoin season” is truly dead, and what this means for the future of crypto investing.
Stock Market Strength in 2024 and 2025
The US stock market has demonstrated impressive resilience and growth over the past two years. The S&P 500 delivered approximately 25% returns in 2024 and continued its upward trajectory with a 17.5% gain in 2025, compounding to roughly 47% over the two-year period. The tech-heavy Nasdaq-100 performed even better, achieving 25.9% and 18.1% returns respectively, resulting in a cumulative gain of nearly 49%. Crucially, these gains were achieved with relatively controlled drawdowns, indicating a stable and consistent upward trend.
Altcoin Performance: A Stark Contrast
In stark contrast to the bullish stock market, the altcoin market has faced significant headwinds. The CoinDesk 80 Index, which tracks the performance of the 80 cryptocurrencies following the top 20 by market capitalization, experienced a substantial decline. It fell a staggering 46.4% in the first quarter of 2025 alone and was down approximately 38% year-to-date by mid-July 2025. The MarketVector Digital Assets 100 Small-Cap Index, representing the smallest 50 tokens in a 100-asset basket, fared even worse, dropping to its lowest level since November 2020, wiping out over $1 trillion from the total crypto market capitalization.
Analyzing Altcoin Indices: A Deeper Dive
To gain a more nuanced understanding of altcoin performance, CryptoSlate tracked three key indices:
- CoinDesk 80 Index: A broad basket of altcoins beyond Bitcoin, Ethereum, and the largest names.
- MarketVector Digital Assets 100 Small-Cap Index: Represents the “junk end of the market,” focusing on the smallest tokens.
- Kaiko's Small-Cap Index: A research product providing a quantitative perspective on smaller-asset performance.
All three indices consistently painted a similar picture: negative returns coupled with volatility equal to or exceeding that of equities.
Correlation, Not Diversification
The divergence in performance isn't a statistical anomaly. Broad altcoin baskets delivered negative returns with volatility comparable to, or even higher than, equities, while US stock indices posted double-digit gains with manageable drawdowns. This raises a fundamental question for Bitcoin investors: did diversifying into smaller crypto assets offer any risk-adjusted benefit, or did it simply add exposure to a negative Sharpe ratio while maintaining a strong correlation with equity markets?
CoinDesk Indices reported that the CoinDesk 80 returned -46.4% in Q1 2025, while the large-cap CoinDesk 20 fell “only” -23.2%. By mid-July 2025, the CoinDesk 80 was down approximately 38% year-to-date, while the CoinDesk 5 (tracking Bitcoin, Ethereum, and three other majors) gained 12% to 13% over the same period. Andrew Baehr of CoinDesk Indices described the situation as “identical correlation, completely different P&L.” The CoinDesk 5 and CoinDesk 80 exhibited a correlation of 0.9, meaning they moved in the same direction, but with drastically different outcomes.
Small-Cap Crypto: The Worst of Both Worlds
The small-cap segment of the altcoin market experienced the most significant decline. Bloomberg reported that the MarketVector Digital Assets 100 Small-Cap Index fell to its lowest level since November 2020 by late 2025. Over the past five years, this index returned roughly -8%, compared to approximately +380% for its large-cap counterpart. Institutional flows clearly favored larger, more established crypto assets, punishing the tail risk associated with smaller, less liquid tokens.
Kaiko's analysis of small-cap performance in 2024 revealed a decline of over 30% for the year, while mid-caps struggled to keep pace with Bitcoin. The winners were concentrated in a narrow set of large names, such as Solana and XRP. Despite a resurgence in altcoin trading volume dominance versus Bitcoin, reaching levels not seen since 2021, 64% of that volume was concentrated in the top 10 altcoins.
Liquidity Migration: From Altcoins to Blue Chips
Liquidity didn't disappear from the crypto market; it simply migrated towards higher-quality assets. Bloomberg and Whalebook coverage of the MarketVector small-cap index highlighted the consistent underperformance of smaller alts since early 2024, with institutional flows channeled into Bitcoin and Ethereum exchange-traded products (ETPs) instead. This trend, combined with Kaiko's observation of concentrated altcoin volume, confirms a clear pattern: liquidity is flowing towards established, more secure crypto assets.
The brief “alt season” experienced in 2024 functioned as a basis trade, not a structural outperformance. CryptoRank's altseason index surged to approximately 88 by December 2024, only to collapse back to 16 by April 2025 – a complete round trip. The S&P 500 and Nasdaq-100, meanwhile, continued to compound their gains.
Risk-Adjusted Returns: A Decisive Advantage for Equities
Analyzing risk-adjusted returns further emphasizes the disparity. The CoinDesk 80 and small-cap alt indices delivered deep negative returns with volatility equal to or higher than equities. The CoinDesk 80's -46.4% loss occurred in a single quarter, while the MarketVector small-cap gauge plummeted to pandemic-era lows in November. Broad alt indices experienced multiple peak-to-trough moves exceeding 50%.
In contrast, the S&P 500 and Nasdaq-100 posted back-to-back 25%/17% total returns with drawdowns limited to the mid-teens. US equities were volatile but controlled, while crypto indices were volatile and destructive. Even considering the inherent higher volatility of altcoins, their 2024 and 2025 payoff per unit of risk was significantly lower than holding US equity indices. Broad alt indices posted negative Sharpe ratios, while the S&P and Nasdaq delivered strongly positive Sharpe ratios.
Implications for Future Liquidity and Investment Strategies
The performance of 2024 and 2025 tested whether altcoins could deliver diversification value or outperformance in a risk-on macro environment. The results are clear: broad altcoin indices underperformed US equities on an absolute basis, underperformed Bitcoin and Ethereum on a risk-adjusted basis, and failed to provide diversification benefits despite maintaining a near-0.9 correlation with large-cap crypto and equities.
Institutional flows have consistently rewarded size and punished tail risk, as evidenced by the MarketVector small-cap index's -8% five-year return versus the large-cap index's +380% gain. The CoinDesk 80's -46% Q1 2025 performance and subsequent -38% year-to-date decline suggest this trend is accelerating.
For BTC/ETH investors considering diversification into smaller crypto assets, the data provides a compelling answer: focus on established, liquid assets with regulatory clarity. Spot Bitcoin and Ethereum ETFs, along with US equities, have offered a significantly better risk-adjusted ride over the past two years. Altcoin liquidity is consolidating in a narrow cohort of “institutional-grade” names like Solana and XRP, while index-level breadth is being punished.
The 2024/25 period serves as a crucial case study. The future of crypto investing likely lies in quality over quantity, with institutional capital continuing to flow towards established assets and away from speculative, small-cap altcoins.
Mentioned in this article: Bitcoin, Ethereum, XRP, Solana, Nasdaq