Entering Altcoin Season
Bitcoin's market dominance has declined from 65% in May 2025 to approximately 59% in August 2025, marking the early stages of capital rotation into altcoins.
CoinMarketCap's Altcoin Season Index currently stands at 44, well below the historical threshold of 75 points that defines an altcoin season.
Despite this, the altcoin market cap has surged over 50% since early July, reaching $1.4 trillion as of August 12. We believe current market conditions are beginning to signal that a full-fledged altcoin season may unfold as September approaches.
Altcoin Open Interest Dominance Soars
Coinbase's constructive outlook is based on our macro perspective and expectations for significant regulatory developments. We previously noted that the global M2 money supply index leads Bitcoin by 110 days and suggests a potential new wave of upward liquidity by late Q3/early Q4 2025. This is critical because, for institutional capital, the market appears to remain focused on blue-chip tokens, which we believe leaves altcoin support primarily driven by retail investors.
Notably, approximately $7.2 trillion is currently parked in U.S. money market funds, a record high. In April, U.S. money market fund cash balances dropped by $150 billion, which we believe contributed to strong performance in cryptocurrencies and risk assets in subsequent months. However, curiously, since June, U.S. money market fund cash balances have increased by over $200 billion, contrasting sharply with the concurrent appreciation in cryptocurrencies. Typically, cryptocurrency price increases and cash balances exhibit an inverse relationship.
Money Market Fund Assets Swell Beyond $7 Trillion
We believe this unprecedented cash reserve reflects missed opportunity costs due to: (1) heightened uncertainty in traditional markets (e.g., trade conflicts); (2) overvalued market conditions; and (3) lingering concerns about economic growth. However, with the Fed's anticipated rate cuts in September and October, we expect the appeal of money market funds to diminish, leading to greater allocations to cryptocurrencies and other higher-risk asset classes.
Indeed, our z-score measurement of cryptocurrency liquidity—weighted by factors like stablecoin net issuance, spot and perpetual trading volumes, order book depth, and free float—indicates that liquidity has begun recovering in recent weeks after six months of decline. Stablecoin growth has been partly supported by clearer regulatory frameworks for these assets.
New Signs of Cryptocurrency Liquidity Recovery
ETH Test
Meanwhile, the divergence between the Altcoin Season Index and total altcoin market cap largely reflects growing institutional interest in ETH, driven by demand from digital asset treasuries (DATs) and increasing discussions around stablecoins and real-world assets. BitMine alone has acquired 1.15 million ETH, with a new funding round of $20 billion, bringing its total purchasing power to $24.5 billion. (The previous ETH DAT leader, Sharplink Gaming, currently holds ~598,800 ETH.)
ETH Held by Select Digital Asset Treasury Companies
As of August 13, top ETH treasury companies control ~2.95 million ETH, accounting for over 2% of ETH’s total supply (120.7 million ETH).
In terms of beta relative to ETH, tokens like ARB, ENA, LDO, and OP rank highest, but only LDO appears to have benefited from ETH’s recent rally, with a 58% cumulative monthly gain. Historically, Lido has offered relatively direct ETH exposure due to its liquid staking nature, with LDO’s current beta to ETH at 1.5. (A beta above 1.0 implies the asset is theoretically more volatile than the benchmark—amplifying both gains and losses.)
Beta of Select Altcoins Relative to ETH (3-Month Window)
Additionally, we attribute LDO’s appreciation to the SEC’s August 5 statement on liquid staking. The SEC’s Division of Corporation Finance staff clarified that liquid staking activities do not involve securities issuance or sales when the services provided are primarily “administrative” and rewards are transferred on a 1:1 basis. However, yield guarantees, discretionary restaking, or additional reward programs may still trigger securities status. Note that this guidance reflects staff views—future SEC adjustments or litigation could alter this interpretation.
Conclusion
Coinbase remains optimistic about Q3 2025, albeit with a nuanced view on altcoin season. Recent declines in Bitcoin dominance suggest an early-stage rotation into altcoins rather than a full-blown altcoin season.
However, with altcoin market caps climbing and early positive signals from the Altcoin Season Index, we believe the market may transition into a more comprehensive altcoin season as September approaches. Macro factors and anticipated regulatory progress both support our bullish outlook.
