Institutional enthusiasm for Bitcoin has created "side effects": retail investors are turning to encryption stocks, with alts' market capitalization evaporating by $800 billion.

According to a report from Bloomberg, a recent report from 10x Research indicates that the growing institutional popularity of Bitcoin and the shift of speculative funds towards crypto-related stocks have resulted in a nearly trillion-dollar market capitalization gap between altcoins and Bitcoin. The report states that if retail investors (especially retail investors in the Korean market) had not shifted their attention to crypto-related stocks and other equities, the total market capitalization of altcoins should have been about $800 billion higher. This structural shift in capital flow is a key factor leading to the poor performance of altcoins in the current cycle, indicating a capital deficit that is difficult to bridge in the short term.

Market Structure Divergence: The Trillion Market Capitalization Gap Highlights the Altcoin Dilemma

For a long time, the total market capitalization trends of Bitcoin and altcoins, the two major categories of encryption assets, have mostly remained consistent. However, in this cycle, the market structure has shown significant differentiation, resulting in an unprecedented market capitalization gap.

Markus Thielen, CEO and Head of Research at 10x Research, emphasized that alts have failed to attract sufficient new capital in this cycle. This predicament mainly stems from two factors:

1. Institutionalization of Bitcoin: The launch of spot Bitcoin ETFs and the increase in institutional participation have led to a significant influx of capital into Bitcoin.
2. Speculation Shift: Retail investors' speculative interest has shifted towards holding tokens in listed tools and other crypto-related stocks, rather than directly purchasing alts.

The report estimates that due to the shift in attention of retail investors, the total market capitalization of alts is about $800 billion lower than it should be, resulting in a significant capital deficit. This structural change indicates that the weak performance of alts is not merely due to short-term fluctuations.

The Outflow of Retail Investor Funds in South Korea: Key Pain Points of Alts

South Korean cryptocurrency traders have traditionally been a key driving force and source of liquidity in the altcoin market, but their trading enthusiasm has significantly declined in this cycle, becoming an important reason for the poor performance of alts.

Historically, trading activity of altcoins on local exchanges in South Korea once accounted for more than 80% of the total trading volume. This stands in stark contrast to global platforms, where Bitcoin and Ethereum together account for 50% or more of the total trading volume.

However, data from 10x Research shows that the appetite of South Korean traders has significantly weakened. Although the average daily trading volume of South Korean cryptocurrency exchanges was still around $9.4 billion from November 5 to November 28, 2024 (higher than the $7 billion of the Kospi stock market), trading volume has since shrunk significantly.

The Vulnerability of Alts Under Macroeconomic Risks

The lack of funds and divided attention in the alts market makes them exhibit greater vulnerability and higher declines during macro risk outbreaks.

Recently, due to the escalation of tensions in Sino-U.S. trade, a sell-off in the encryption market has occurred. Although both Bitcoin and alts have experienced declines, alts have suffered a relatively more severe impact. Of the total market capitalization of 380 billion dollars wiped out, approximately 131 billion dollars is concentrated in the altcoin sector. This ratio indicates that when market sentiment deteriorates, illiquid alts are more susceptible to large-scale sell-offs.

The conclusion of the report from 10x Research is that this shift in focus away from Bitcoin and encryption stocks represents a “structural change” for alts, and this capital deficit is unlikely to be compensated in the short term.

Conclusion

The institutional narrative of Bitcoin is unexpectedly affecting the altcoin market: retail investor funds are being diverted to crypto stocks, resulting in a lack of new capital injection into altcoins. The weakening trading activity in the South Korean market further exacerbates this issue. For investors, this report serves as a warning: against the backdrop of structural changes in capital flows, the recovery of altcoins will face greater challenges. Investors need to carefully assess the risk/return ratio of altcoins relative to Bitcoin when allocating assets.

Disclaimer: This article is for news information only and does not constitute any investment advice. The cryptocurrency market is highly volatile, and investors should make cautious decisions.