Why have altcoins continued to underperform Bitcoin since the end of 2023? What are the reasons behind this trend, and how might it evolve in the future?

When Bitcoin began leading the sell-off at the end of January and the market evaporated nearly $500 billion in market capitalization in less than a week, a more subtle fact was revealed. Since December 2024, the altcoin market, excluding Bitcoin, has actually been in a bear market.

This has made 2025 a year many altcoin holders want to forget. While Bitcoin hit a new all-time high, altcoins have been stumbling.

Market Divide

The divergence in the cryptocurrency market has become inevitable. By February 2026, the cracks in the market are no longer just simple rotations between Bitcoin and altcoins but have evolved into a profound structural adjustment.

The most direct manifestation of this divergence is the huge price gap. Data from February 2 shows Bitcoin at approximately $78,688.76, while Ethereum is at $2,344.36. Within a week, Bitcoin dropped 8.7%, while Ethereum plummeted 19.4%.

The broader altcoin market suffered even more severe losses. According to TradingView’s “Other” category (representing the altcoin sector), it has declined 43% since the beginning of the year. This drop starkly contrasts with the 17% increase in the S&P 500 during the same period.

Structural Issues

Cosmo Jiang, Head of Liquid Token Strategies at Pantera Capital, describes the current market as a “rolling bear market” that continues in the altcoin space. This precise description reveals a deeper issue than surface-level price fluctuations: the market is undergoing a structural cleanup.

Once leading projects of the previous cycle now seem dull. LINK tokens have fallen 40% over the past year, down 76% from their all-time high; AAVE’s situation is even worse, down 53% year-to-date, 78% below its all-time high.

Some once-prominent projects, like Polkadot’s DOT token, have fallen 73% over the past year, with a decline of up to 97% from the November 2021 all-time high.

Capital Flow Shift

Since spot Bitcoin and Ethereum ETFs were approved in the U.S., the logic of capital flow in the market has fundamentally changed. These products attracted large amounts of traditional institutional funds, but these funds tend to hold long-term, reducing daily market liquidity.

Data from early February 2026 reveals the consequences of this shift: Bitcoin ETF net outflows reached $1.49 billion, the second-highest weekly outflow on record; Ethereum ETFs also saw outflows of $326.9 million.

A key indicator is the total value locked (TVL) in decentralized finance, which remains below the peak of the previous market cycle. This indicates that funds have not flowed into DeFi and other native crypto platforms as they did before, making it difficult for capital to diffuse into the broader altcoin sector.

Supply and Demand Imbalance

One of the fundamental dilemmas facing altcoins is a severe imbalance between supply and demand. Over the past two years, the barriers to creating and issuing tokens have been significantly lowered, leading to a flood of new projects entering the market.

Platforms like Solana-based pump.fun have made token creation so simple that even non-technical users can launch tokens in minutes. Just one platform, pump.fun, sometimes sees over 10,000 new tokens created daily.

While supply has surged, demand appears weak. An estimated $20 billion worth of tokens are set to unlock this year, more than three times the dollar value of tokens unlocked in 2022. This unprecedented supply growth far exceeds retail and institutional demand, creating a significant supply-demand imbalance.

Accelerating Market Narratives

Market narratives are shifting at an unprecedented pace. In past cycles, dominant themes like DeFi or NFTs could sustain market attention for months. Today, hype cycles are shorter, with trends often emerging within days or weeks and then quickly being replaced by the next hot topic.

This rapid rotation makes it harder for retail and institutional investors to form long-term convictions, leading market participants to chase short-term gains. Even within the same sector, performance can vary widely.

In Q4 2025, privacy coins performed well, with Zcash (ZEC) rising 800% year-to-date and Monero (XMR) up 126%. However, by February 2026, both saw significant declines, dropping over 20% in a week.

Reversal Opportunities and Structures

Despite the overall weakness, there are still structural opportunities in the market. In early February, Hyperliquid’s HYPE token stood out, rising 45.8% in a week against the trend.

HYPE’s strong performance was partly due to a surge in commodity trading activity on the HIP-3 protocol and public mentions by Ark Invest’s Cathie Wood, who highlighted Hyperliquid as an attractive investment, boosting investor confidence. Another resilient asset is Canton Network’s CC token, focused on institutional finance, which rose 20% in a week.

These counter-trend gains reveal the current market’s selection logic: investors are shifting toward quality, fundamentals-driven investments. Joscha Kuplewatzky of Wintermute Ventures notes that unless retail investors become active again, any rally is likely to be short-lived and sector-specific.

Investor Behavior Patterns

In a subdued market environment, investor behavior has also changed significantly. Gate Ventures’ February market weekly report pointed out that market sentiment has further deteriorated, with the Fear & Greed Index plunging to 14, in the “Extreme Fear” zone.

This extreme fear index correlates with the widespread decline in altcoins, indicating a severe lack of investor confidence.

Faced with such market conditions, many investors say that cryptocurrencies are no longer the first choice for new capital. This shift in mindset further reduces incremental inflows into the altcoin market, creating a negative feedback loop.

Meanwhile, new pressure points are forming. For example, Trend Research estimates that the liquidation level of ETH DeFi positions on Aave is around $1,880, highlighting the rising downside risk if selling pressure continues.

Summary

Bitcoin experienced intense price swings on February 9, briefly rising near $72,000 before falling back to around $70,700. The Fear & Greed Index hit a low of 17/100 in early February, indicating “Extreme Fear.” As the market adjusts and capital exits, traders who previously turned to precious metals are forced to sell crypto assets to meet margin calls.

The structural cleanup in the market continues, and only when excesses are cleared can valuable projects truly stand out. The much-anticipated “altcoin season” has not arrived as expected.