Coinbase: Altcoin season is about to arrive in full swing

Source: Coinbase Research; Compiled by: Golden Finance

Key Points:

• Despite some shifts in views on the altcoin season, Coinbase remains optimistic about the third quarter of 2025. Coinbase believes that as September approaches, current market conditions may indicate the full arrival of the altcoin season. (A common definition of an altcoin season is when at least 75% of the top 50 altcoins by market capitalization have outperformed BTC over the past 90 days.) Many debate whether the Federal Reserve's September rate cut signals a local peak in the cryptocurrency market. Coinbase believes otherwise. Given the significant amount of retail capital on the sidelines in money market funds (over $7 trillion) and other sectors, Coinbase believes the Fed's easing policy could unlock the potential for greater retail participation in the medium term. Focus on ETH.  The discrepancy between (1) a sharp decline in CoinMarketCap’s Altcoin Season Index and (2) a 50% increase in total altcoin market capitalization since early July largely reflects growing institutional interest in ETH. This is driven by demand for digital asset treasuries (DATs) and the growing discussion around stablecoins and real-world assets. Tokens such as ARB, ENA, LDO, and OP all have higher betas than ETH, but only LDO appears to have benefited from the recent rise in ETH, with a cumulative monthly gain of 58%. Historically, Lido has provided relatively direct exposure to ETH given the nature of liquidity staking. Furthermore, we believe LDO’s rise is also supported by the US SEC’s statement that liquidity staking tokens do not constitute securities under certain conditions.

Entering Altcoin Season

Bitcoin’s market dominancehas fallen from 65% in May 2025 to approximately 59% in August 2025, marking the early stages of a rotation into altcoins.

CoinMarketCap’s Altcoin Season Index is currently at 44, well below its historical threshold of 75 points that defines an altcoin season. Although the altcoin market capitalization has climbed over 50% since early July, reaching $1.4 trillion as of August 12, we believe that current market conditions are beginning to signal that the altcoin season may be in full swing as September approaches. Coinbase’s constructive outlook is based on our macro perspective and expectations of significant regulatory developments. We previously noted that the global M2 money supply index leads Bitcoin by 110 days and suggests a potential wave of upward liquidity in late Q3/early Q4 2025. This is crucial because, for institutional capital, the market appears to be consistently focused on blue-chip tokens, which we believe has led to altcoin support primarily coming from retail investors. Notably, approximately $7.2 trillion is currently held in U.S. money market funds, a record high. (See Figure 2.) U.S. money market fund cash balances fell by $150 billion in April, which we believe contributed to the strong performance of cryptocurrencies and risk assets in the following months. Curiously, however, U.S. money market fund cash balances have increased by over $200 billion since June, a stark contrast to the cryptocurrency appreciation we have seen over the same period. Typically, there is an inverse relationship between cryptocurrency price increases and cash balances. Figure 2. Money Market Fund Assets Have Swelled to Over $7 Trillion We believe this unprecedented accumulation of cash represents missed opportunity costs due to: (1) heightened uncertainty in traditional markets (due to issues such as trade conflicts); (2) stretched market valuations; and (3) lingering concerns about economic growth. However, as the Federal Reserve approaches its September and October rate cuts, we believe the appeal of money market funds will begin to wane, leading to greater allocations to cryptocurrencies and other riskier asset classes. In fact, our weighted z-score measure of cryptocurrency liquidity, based on factors such as net stablecoin issuance, spot and perpetual swap trading volume, order book depth, and free float, suggests that liquidity has begun to recover in recent weeks after a six-month decline. (See Figure 3.) The growth of stablecoins is driven in part by greater clarity in the regulatory environment for these assets.

Figure 3. New Signs of Cryptocurrency Liquidity Recovery

ETH Test

Meanwhile, the divergence between the Altcoin Quarterly Index and the total altcoin market capitalization largely reflects the growing interest in ETH among institutional investors, driven by demand from digital asset treasuries (DATs) and the growing discussion around stablecoins and real-world assets. BitMine alone has purchased 1.15 million ETH, and its new funding round has reached $20 billion, bringing its total purchasing power to $24.5 billion. (Sharplink Gaming, the previous leader of ETH DAT, currently holds approximately 598,800 ETH.)

Figure 4. ETH held by some digital asset treasury companies

As of August 13, the latest data shows that the top ETH treasury companies control approximately 2.95 million ETH, accounting for more than 2% of the total ETH supply (120.7 million ETH). (See Figure 4.)

In terms of beta relative to ETH, tokens such as ARB, ENA, LDO, and OP top the list, but only LDO appears to have benefited from the recent rally in ETH, with a monthly cumulative increase of 58%. Historically, Lido has provided relatively direct ETH exposure due to its liquidity staking nature, and LDO currently has a beta of 1.5 relative to ETH. (A beta above 1.0 indicates that the asset is theoretically more volatile than the benchmark—this can amplify both gains and losses.) Figure 5. Beta of Selected Altcoins Relative to ETH (3-Month Window) Additionally, we believe LDO's appreciation is attributable to the U.S. SEC's August 5 statement on liquidity staking. The SEC's Division of Corporation Finance staff stated that when the services provided by a liquidity staking entity are primarily "service-oriented" and rewards for protocol staking are transferred on a one-to-one basis, liquidity staking activities do not involve the issuance or sale of securities. However, yield guarantees, discretionary rehypothecation, or additional return programs could still trigger securities offering status. Please note that the current guidance represents only the staff's opinion—future SEC adjustments or litigation could alter this interpretation. Coinbase's outlook for Q3 2025 remains positive, despite some shifts in its view on altcoin season. The recent decline in Bitcoin's dominance suggests an early rotation into altcoins rather than a full-blown altcoin season. However, with the rise in altcoin market capitalization and the positive early signals from the Altcoin Season Index, we believe the market could enter a more comprehensive altcoin season as September approaches. Our positive outlook is supported by both macroeconomic factors and expected regulatory developments.