Shanzhai Season Index drops to a new low. Has the market really changed?

Over the past year, the cryptocurrency market has shown a stark contrast to the US stock market. The S&P 500 and NASDAQ 100 indices have gained 47% and 49% respectively over two years, while the Altcoin index has been deep in a downtrend. The crypto market is now experiencing a structural shift with capital flowing into high-quality assets.

The S&P 500 is projected to rise 25% and 17.5% in 2024 and 2025 respectively, with the NASDAQ 100 increasing by 25.9% and 18.1% in the same period, and its maximum drawdown is only around 15%.
In contrast, the altcoin market, the CoinDesk 80 Index (tracking 80 cryptocurrencies outside the top 20), plummeted 46.4% in the first quarter of 2025, and has fallen 38% from the beginning of the year to mid-July.

The MarketVector Digital Asset 100 Small Cap Index even dropped to its lowest point since November 2020 by the end of 2025, with the total crypto market capitalization evaporating over $1 trillion.

The core reason for this contrast is the “return imbalance under high correlation.” The CoinDesk 5 Index (tracking mainstream coins like Bitcoin) has a correlation of up to 0.9 with the CoinDesk 80, moving in sync but with vastly different returns—while the former gained 12%-13% during the same period, the latter fell nearly 40%.

The risk-adjusted return gap is even more pronounced. The volatility of the Altcoin Index is comparable to or even higher than that of US stocks, yet it records significant negative returns, with a negative Sharpe ratio; meanwhile, US stock indices maintain a positive Sharpe ratio.

Over the past five years, the MarketVector Small Cap Crypto Index has returned -8%, while the broader crypto index has surged by 380%, clearly indicating institutional capital is voting with its feet.

Kaiko data shows that although altcoin trading volume has rebounded to 2021 levels, 64% of it is concentrated in the top 10 altcoins, with “institutional-grade” assets like Solana and XRP, which have clearer regulatory clarity, being the minority winners.

Funds have not exited the crypto market but are flowing upward along the quality curve. Bitcoin and Ethereum spot ETFs continue to attract institutional investors.

For investors, diversifying into altcoins at this stage has lost its meaning. The nearly 0.9 correlation between CoinDesk 5 and CoinDesk 80 means holding altcoins does not provide diversification benefits but instead adds extra risk.

The volatility of the “Altcoin Season” index, which plummeted from 88 to 16 by the end of 2024, further confirms its tactical trading nature rather than a long-term asset allocation.

The current market logic has completely shifted: capital no longer favors niche altcoins but focuses on high-quality assets with clear regulation and ample liquidity.

Bitcoin and Ethereum are gaining institutional recognition through ETFs, while the US stock market, with its stable returns, continues to attract funds. Both are squeezing out the survival space of inferior altcoins.