Rapid growth in the derivatives market and its impact in terms of leverage, as well as limited spot flows.
Every altcoin season in the past has been characterized by heavy liquidity rotation, allowing altcoins to achieve impressive upside.
Analysts expected such an outcome this year, especially after Bitcoin achieved new historic highs, followed by a decline in dominance below 60%.
Altcoin season has not really taken off this year despite multiple indicators in favor. The chances of a major altcoin rally have been diminishing, especially with only a few weeks left until 2025 comes to a close.
Let’s dive into some of the reasons why altcoin season expectations missed the mark this year. Institutions played a big part in steering liquidity flows in the market.
Ethereum and Bitcoin ETFs ensured that institutional liquidity mostly focused on the two coins. As a result, the top coins enjoyed the bulk of price movements, thus shifting attention away from altcoins.
According to the latest Global Crypto Hedge Fund report, exposure to crypto surged to 55% of hedge funds in 2025, compared to 47% in 2024.
It also revealed that the exposure was mostly through ETFs, derivatives, tokenized assets, and equities.
While institutions mostly favored ETH and BTC, there were times when liquidity rotation accelerated. That was particularly the case in Q3, during which Bitcoin came off new highs and its dominance slid below 60%.
Unfortunately, altcoins did not feel the full weight of demand, and this was largely due to macroeconomic disruptions.
For example, the threat of tariffs 2.0 popped up at around the same time that altcoins were on the right side of liquidity rotation.
The tariff war had a negative impact on market sentiment, consequently causing liquidity outflows from risk-on assets.
Moreover, other key considerations such as inflation and recession risks which also dampened investor sentiment.
These concerns also pushed Bitcoin dominance back above 60%. This outcome was largely because investors tend to be more conservative and risk averse during periods of high uncertainty.
Interestingly, Bitcoin dominance retreated below 60% once again this week. This signaled that investors were increasingly eying altcoins as the market attempted to recover from the latest downtrend.
Interestingly, the aforementioned hedge fund report revealed a growing appetite for DeFi. In other words, institutional demand will likely spread out into other coins apart from Bitcoin and Ethereum in the coming months.
Many altcoins saw record-high levels of open interest in the last few months. This meant that many traders were opting to secure exposure through the derivatives market rather than the spot market.
This focus on derivatives robbed most altcoins of enough liquidity to fuel significant upside.
Moreover, it also introduced more leverage into the system, which set altcoins up for heavy liquidations and extremely volatile price movements.
This was particularly evident in October during the flash crash. The latter yielded the highest liquidation event observed in history.
Market excitement has been building up around some altcoins this week despite an overall bearish performance.
Some analysts remained optimistic about the prospects of an explosive bullish conclusion in the remainder of 2025.
Furthermore, the bull run could still extend into 2026 especially now that the global liquidity conditions have been improving.
This suggests that altcoin season might be delayed but could still live up to its potential.
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