Bitcoin maxis are about to kick off the altseason as BTC turns institutional


The arrival of exchange-traded funds (ETFs) for spot Bitcoin (BTC) has changed everything, but not just for institutions. It created a polarized market for retail crypto investors, and we’re about to see a major rebalancing as a result.

On one hand, we have mom-and-pop investors who are now getting exposure to Bitcoin via their advisers investing in spot BTC ETFs for the first time ever. It’s only a matter of time until Bitcoin becomes as common in these household portfolios as gold. On the other hand, though, we have the “OGs” of the crypto market — those that have been around since the early days and fully subscribe to the ethos of Web3. They invest in Bitcoin because of its decentralization and censorship resistance. But now that every man and his dog are adding Bitcoin to their portfolios, they’ve lost their first-mover advantage — and they’re about to revolt.

From the point of view of an early Bitcoin investor, the world’s biggest crypto asset has, indeed, strayed far from its original purpose — to replace the existing broken payments system. Inadvertently, it has now become part of the very system it was designed to subvert. It would be a little like discovering a hidden gem of a restaurant, only to see it explode in popularity and be taken over by a large corporation. The quality would drop, the original purpose be all but forgotten, and you’d struggle to get a seat at the table.

Related: Bitcoin just hit a record in open interest — expect imminent volatility

It’s not just about the purpose of Bitcoin, though. As more and more buyers vie for an increasingly limited supply of this finite asset, Bitcoin’s price will soar, but it’ll be the big boys that benefit, as even the 25 basis points they earn for managing the BTC spot ETFs will bring in billions. Sure, the crypto-savvy retail buyers will still be able to get their hands on Bitcoin directly via crypto exchanges, but giving up most of the profits to the world’s biggest asset managers isn’t what Web3 has ever been about.

So we are witnessing a polarization of the crypto market into the mom-and-pop investors willing to pay the ticket price to ride the Bitcoin train, and those that are used to getting this ride for free. These latter investors won’t stick around to see if the ride is worth the fee, they will simply go elsewhere — a part of the market that remains true to the ethos of crypto and offers intermediary-free access to the world of blockchain.

This will be the catalyst for the much-anticipated altcoin season. The Bitcoin maxis diversifying their portfolios, the crypto OGs looking for bigger and better returns as Bitcoin becomes mainstream, and the true believers in crypto’s decentralized dream.

BTC/ETH daily chart as of March 18, 2024, when one Bitcoin was worth around 19 Ether. Source: Binance

So far, altcoins have lagged Bitcoin in terms of performance, as is common during this part of the cycle. But we’re beginning to see signs of a reversal. Over the last 10 weeks or so, Ethereum (ETH) has been posting higher highs and higher lows against Bitcoin, meaning we could be in for a breakout sometime in the coming weeks. When this happens, altcoins will follow — as they always do — and it will be the Bitcoin investors seeking alternatives that drive this transition.

In fact, the more institutions dive into Bitcoin and the more traditional investors add it to their portfolios, the more polarized the crypto retail market will become. And amid this re-allocation of assets into altcoins, we will see several of them rise into the “too-big-to-fail” ranks that have, until now, really only been the realm of Bitcoin. This cycle will be a decisive one in sorting the wheat from the chaff and determining which alts will live to see another bull market.

Related: Curb your enthusiasm — crypto prices aren’t going to move as quickly as you think

That’s not to say that every crypto-savvy retail investor will flee Bitcoin entirely. After all, altcoin investing requires a relatively strong stomach. For most, Bitcoin will become the balancer — the reliable and less volatile core in their portfolios that provides the buffer for higher-risk investments. But as the Bitcoin behemoth grows, we can expect the asset to lose some of its most dedicated OGs, as they head off in search of more decentralized alternatives and bigger gains.

However this rebalancing plays out, one thing is clear: the institutions will profit either way. Even a major retail exodus will have very little impact on BTC’s price direction now — the scarcity, growing demand, and billions of institutional inflows will take care of that.

It will, however, have a profound effect on the future of the decentralized finance (DeFi) market. With only just over $100 billion in total value locked (TVL) to date — against Bitcoin’s growing $1.4 trillion market cap — even a relatively insignificant rotation into altcoins could have a major impact on DeFi’s growth. If Bitcoin maxis turn to altcoins with the same fervor they’ve dedicated to BTC since launch, we’re about to see some explosive growth in altcoins. Whichever side of the camp you find yourself on, get ready for an exciting summer.

Lucas Kiely is a guest author and the chief investment officer for Yield App, where he oversees investment portfolio allocations and leads the expansion of a diversified investment product range. He was previously the chief investment officer at Diginex Asset Management, and a senior trader and managing director at Credit Suisse in Hong Kong, where he managed QIS and Structured Derivatives trading. He was also the head of exotic derivatives at UBS in Australia.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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