The Real Story Behind Why Are Altcoins Struggling

In the ever-volatile world of cryptocurrency, a marked divergence has emerged between the performance of altcoins and the dominance of major players like Bitcoin and Ethereum. Altcoins—commonly defined as all cryptocurrencies other than Bitcoin—are underperforming, and a new industry report sheds light on why the shake-up may be deeper and more structural than many believed.

A staggering shortfall

According to a fresh analysis by the research firm 10x Research, the altcoin market is approximately US$800 billion smaller than it could have been in this cycle. That isn’t simply a statement of price declines—it reflects a missing flow of capital that went elsewhere. As explained by Markus Thielen, CEO and Head of Research at 10x Research:

“The altcoin market could be about US$800 billion larger if retail investors, especially in South Korea, had not shifted their focus to crypto-stocks and other investments.”

This shift in behaviour by retail investors is emerging as a key factor in the slump of altcoins—beyond macro headwinds, regulatory risks or hype cycles.

South Korea: from altcoin haven to alt-void

One regional market that stands out in the narrative is South Korea. Historically, Korean crypto traders were among the most active in altcoins—on local exchanges altcoins accounted for over 80 % of trading volume. To put the shift into perspective: during 5–28 November 2024, Korean crypto exchanges averaged about US$9.4 billion per day in trading volume. By contrast, the country’s stock market benchmark, the KOSPI index exchanges, averaged around US$7 billion daily. But since then, 10x Research reports trading volumes have collapsed significantly—signalling a clear drop-off in retail interest.

The shift: altcoins to crypto-stocks and Bitcoin

So what are these retail investors doing instead of altcoins? The answer is two-fold:

1. More capital flowing into Bitcoin and Ethereum, which are increasingly perceived as less risky or more “institutional-friendly” crypto assets.
2. Movement into crypto-related stocks and listed vehicles: Rather than buying smaller tokens, some investors in South Korea and beyond are choosing to invest in companies tied to digital assets or that hold crypto treasuries.

That repositioning is described in the report as a “structural shift.” In other words, it isn’t just a temporary blip based on sentiment—it suggests that the role of altcoins in the ecosystem may be undergoing a longer-term realignment.

The recent sell-off: altcoins took the hit

The timing of this shift is especially unfortunate for altcoins. Amid rising tensions in the United States-China trade landscape, the crypto market experienced a sharp sell-off. 10x Research estimates that of the US$380 billion lost during that downturn, about US$131 billion came from altcoins alone. When altcoins are hit hardest on the downside, it becomes increasingly difficult for them to bounce back quickly—especially when fresh inflows are scarce.

Why are altcoins failing to draw fresh money?

Several interlocking reasons help explain why altcoins are struggling to win back capital:

• Retail fatigue: Many smaller-token investors may have been burned in previous cycles; their appetite to re-enter high-risk positions appears muted.
• Risk landscape changed: With more attention on Bitcoin and larger players, the perception of altcoins as speculative “fly-by-night” plays may be reinforced.
• Institutional bifurcation: Big money tends to favour infrastructure, regulatory clarity, and scalable tokens—areas where Bitcoin and Ethereum dominate.
• Regional pivot: As major altcoin hubs like South Korea reduce their exposure, a key source of liquidity has been diminished.
• Capital diversion: As seen, money is being diverted to crypto-stocks and platforms that bundle exposure to digital assets indirectly—thus bypassing altcoins altogether.

Implications for altcoin ecosystems

The consequences of this shift are meaningful and may persist if left unchecked:

• Reduced hype cycles: Without massive retail inflows, altcoins may see fewer speculative surges.
• Token-valuations under pressure: Projects rely on capital, awareness and trading volume—weak quality in any of those dims future prospects.
• Longer recoveries: If the “missing” US$800 billion isn’t replaced, altcoins may take much longer to catch up with past cycles.
• Liquidity drying up: Lower trading volumes reduce market depth, making tokens more volatile and potentially less attractive.
• Winners vs losers: Within the altcoin universe, projects with strong fundamentals, use-cases and liquidity may survive, while weaker ones may fade faster.

What might reverse the trend?

While the current picture is sobering for altcoins, a few scenarios could alter the course:

• Major innovation or breakout use-case: If a new altcoin or ecosystem delivers compelling utility (DeFi, AI, gaming, Web3), it could reignite interest.
• Regulatory clarity: Clearer rules around altcoins could reduce perceived risk and encourage capital inflows.
• Global retail resurgence: Beyond South Korea, if retail traders in other markets raise exposure again, it could boost altcoin volumes.
• Institutional entry into altcoins: If large investors begin allocating to altcoins (not just Bitcoin), it could shift liquidity back.
• Macro tailwinds: Crypto markets are impacted by macroeconomics—favourable conditions (e.g., inflation down, rates stable) might lift altcoins.

What this means for investors

For retail investors and crypto-enthusiasts, the message is clear: this cycle is not like the previous ones. Betting on altcoin season purely on past patterns may be risky without considering the structural changes at play. Portfolio strategies may need adjusting: focusing on quality, depth, and staying wary of hype-driven smaller tokens. Those already invested in altcoins should especially monitor liquidity and new capital flows. Without a resurgence of interest—or heavy institutional backing—many altcoins may face headwinds for some time.

Looking ahead

In the broader crypto narrative, Bitcoin and Ethereum continue to dominate mind-share, infrastructure investment and mainstream finance narratives. While altcoins remain an important part of the ecosystem, they now face greater hurdles to achieving the explosive growth seen in earlier cycles. As one analyst puts it: the US$800 billion gap isn’t just a number—it reflects a shift in how capital flows into digital assets, where it’s coming from, and what assets it chooses.

In short, the current slump in altcoins can largely be attributed to capital reallocation—especially by retail investors who have pivoted away from altcoins toward Bitcoin and crypto-stocks. South Korea’s drop in trading volumes provides a vivid example. This shift appears to be structural, not merely cyclical, meaning the altcoin market may face a longer road to recovery. For now, altcoins must earn fresh capital and regain investor confidence to begin closing that large gap.

Disclaimer: CryptopianNews shares this for learning and info only. It’s not meant to be financial or investment advice. Crypto markets change a lot and move quickly. Investing in them can be risky. You should always look into things yourself. Talk to a trained financial advisor before making any choices about investing.