Shifting Tides: Investors Pivot Toward Altcoins Amid Bitcoin Slowdown

In the current cycle, Bitcoin has anchored most of the capital inflow. In 2025, 66% of investors selected Bitcoin as their first digital purchase, driven by more global regulatory clarity and ease of access. With the cycle progressing and Bitcoin dominance falling below 58%, altcoins have gained momentum, with 73% of institutional investors now holding or allocating capital into them. This shift signals a growing trend among investors as they view altcoins as a diversifying strategy.

****Capital seeks higher returns****

Interest rate fluctuations are a primary driver for how institutions allocate capital towards risk on assets. Lower interest rates trigger higher investor risk appetite, as patterns indicate stronger inflows into digital assets. Notably, TOTAL3 has increased by 109.43% YoY, highlighting how altcoins often outperform Bitcoin as higher-beta assets during easing cycles.

Bitcoin dominance is showing signs of reversal as the altcoins market jumped from below 35% to 41% in early September, while Bitcoin’s dominance slid below 58% for the first time in 2025. Institutional inflows are reinforcing the trend as Ethereum ETFs attracted $3 billion in net flows in a single week.

The global M2 liquidity has expanded by $5.6 trillion in 2025, indicating a notable increase in global liquidity. Consequently, more capital is available for investment following monetary policy easing, with capital historically rotating into altcoins that can outperform Bitcoin up to 200%.

****Institutional Momentum Extends Beyond Bitcoin****

Institutional capital is no longer solely concentrated on Bitcoin. The existing cycle shows a growing institutional interest across multiple crypto verticals. Binance Research (PDF) has highlighted stronger performance in sectors such as DeFi, stablecoins, and RWA. At the same time, research on institutional adoption of DeFi emphasises that 24% of institutions currently engage with crypto products, and this number is expected to triple in the next two years.

DeFi recorded a 44.5% year-to-date gain, while stablecoin had a 38.6% increase. Both sectors outperformed Bitcoin’s YTD increase of 19.8% is illustrating why capital is shifting from Bitcoin towards altcoins and infrastructure. As Bitcoin dominance falls below 57%, institutions are diversifying by capitalising on the regulatory tailwind, indicating that institutional interest is no longer confined to a single asset.

Binance France President David Princay recently commented on a potential altcoin season, “If or when BTC prices plateau, institutions and corporations may look to diversify their crypto holdings further. It will be interesting to observe how an altcoin season unfolds in a more mature and regulated crypto market.”

Rising DEX volumes are an early indicator of investors pivoting their strategy to increase altcoin exposure. With many new tokens initially unavailable on centralised exchanges, DEXs capture dislocated liquidity by offering listings ahead of traditional platforms. DEX volumes doubled over the past year, with spot reaching 23.1% and futures climbing to 9.3%.

Additionally, DEX trading volumes reached a combined total of over $1.15 trillion in 2025. Similarly, Ethereum has reached an all-time high monthly DEX volume of $139.63 billion in August 2025, emphasising how investors seek DEXs as alternative trading infrastructures to access new assets.

Fee reductions on Ethereum have supported increased activity and reduced costs for DeFi users. The network has also enabled higher on-chain trading volumes, which more than doubled in 2025 while centralised exchange activity declined. Growing on-chain metrics emphasise the structural shift toward decentralised infrastructure as a driver of market activity.

****On-Chain Lending Moves From Growth to Utilisation****

On-chain data illustrate that DeFi protocols are continuing to grow in value. Total value locked (TVL) on lending increased by 65% to $79.8B for the first time, with investors identifying new opportunities to deploy capital towards on-chain lending.

Larger protocols such as AAVE are capturing the growth with half of the on-chain lending market – $39.9 billion. Ethereum’s DeFi TVL has expanded from $54 billion to over $97 billion while total staked ETH neared 35.8 million ETH. The Paceta accelerated this trend by increasing the validators’ stake from 32 ETH to 2,048 ETH, prompting entities to allocate capital and capitalise on the opportunities.

Regulatory clarity helped drive demand for DeFi products. The SEC’s announcement not to classify liquid staking as a security prompted positive institutional momentum. According to DeFi Llama, total liquid staking increased by 103% year-over-year, reflecting growing institutional demand for deploying altcoins to generate reliable yields.

Such developments underline DeFi’s role in evolving beyond deposit and towards active use cases. Stablecoin deposits on exchanges climbed to an all-time high of $68 billion, indicating available capital for potential deployment from retail and institutional investors towards digital assets.

****Wrap Up****

As Bitcoin’s dominance continues to ease, the rise of altcoins underscores a broader maturation of the digital asset market. What was once seen as a speculative corner of crypto is now attracting serious institutional attention, reshaping portfolio strategies in the process.

If the trend continues, altcoins may move beyond being seen as just “alternatives” to Bitcoin. Instead, they could become core pieces of diversified crypto strategies, signalling a shift in how investors approach the next phase of the digital economy.

(Image by Igor Schubin from Pixabay)