Small-cap tokens fall to four-year lows. Is the "Shanzhai Bull" completely hopeless?

Author: Gino Matos
Translation: Luffy, Foresight News

Since January 2024, the performance comparison between cryptocurrencies and stocks indicates that the so-called new “altcoin trading” is essentially just an alternative to stock trading.

In 2024, the S&P 500 index return is about 25%, with 17.5% in 2025, totaling a roughly 47% increase over two years. Meanwhile, the Nasdaq 100 index rose by 25.9% and 18.1% respectively, with a cumulative increase close to 49%.

The CoinDesk 80 Index, which tracks 80 assets outside the top 20 by market cap, experienced a 46.4% crash in the first quarter of 2025 alone. As of mid-July, its year-to-date decline is approximately 38%.

By the end of 2025, the MarketVector Digital Assets 100 Small Cap Index dropped to its lowest level since November 2020, resulting in a total cryptocurrency market cap evaporation of over 1 trillion USD.

This divergence is far from a statistical error. The overall altcoin asset portfolio not only has a negative return but also exhibits volatility comparable to or higher than stocks; in contrast, major U.S. stock indices achieved double-digit growth with manageable drawdowns.

For Bitcoin investors, the core question is: can allocating to small-cap tokens deliver risk-adjusted returns? Or, does such allocation merely maintain a correlation similar to stocks while exposing investors to additional negative Sharpe ratio risk? (Note: The Sharpe ratio is a key metric measuring risk-adjusted returns of a portfolio, calculated as: annualized portfolio return minus the risk-free rate, divided by annualized volatility.)

Choosing a Reliable Altcoin Index

To analyze, CryptoSlate tracked three altcoin indices.

The first is the CoinDesk 80 Index, launched in January 2025, which covers 80 assets outside the CoinDesk 20 Index, offering a diversified portfolio beyond Bitcoin, Ethereum, and other major tokens.

The second is the MarketVector Digital Assets 100 Small Cap Index, selecting the smallest 50 tokens by market cap from its basket of 100 assets, serving as a barometer for “junk assets” in the market.

The third is the Small Cap Index launched by Kaiko, a research-oriented product rather than a tradable benchmark, providing a clear seller’s quantitative perspective for analyzing small-cap asset groups.

These three depict the market landscape from different dimensions: the overall altcoin portfolio, high-beta small-cap tokens, and a quantitative research perspective. Yet, their conclusions are highly consistent.

In stark contrast, the benchmark performance of stock markets shows an entirely different trend.

In 2024, the U.S. major indices achieved around 25% gains, with double-digit increases in 2025, and relatively limited retracements during the period. The maximum drawdown for the S&P 500 in that year was only in the mid to high single digits, while the Nasdaq 100 maintained a strong upward trend.

Both major stock indices achieved compounded annual returns without significant profit retracement.

However, the overall altcoin index behaved very differently. According to reports from CoinDesk, the CoinDesk 80 Index plummeted 46.4% in the first quarter alone, while the broader CoinDesk 20 Index tracking the market fell by 23.2%.

As of mid-July 2025, the CoinDesk 80 Index was down 38% year-to-date, whereas the CoinDesk 5 Index, tracking Bitcoin, Ethereum, and three other major coins, gained between 12% and 13% during the same period.

Andrew Baehr of CoinDesk, in an interview with ETF.com, described this phenomenon as “perfect correlation in performance, but vastly different profit and loss outcomes.”

The correlation between the CoinDesk 5 and CoinDesk 80 indices is as high as 0.9, meaning their price directions are perfectly aligned, yet the former experienced modest double-digit growth while the latter nearly fell by 40%.

It is evident that holding small-cap altcoins provides almost no diversification benefits, while the performance costs are extremely heavy.

The performance of the small-cap asset segment is even worse. Bloomberg reports that as of November 2025, the MarketVector Digital Assets 100 Small Cap Index reached its lowest level since November 2020.

Over the past five years, this small-cap index has returned about -8%, while the corresponding large-cap index increased by approximately 380%. Institutional capital clearly favors large-cap assets and avoids tail-risk.

Looking at 2024’s altcoin performance, the Kaiko small-cap index declined over 30% throughout the year, and mid-cap tokens also failed to keep pace with Bitcoin’s gains.

Market winners are highly concentrated in a few leading coins, such as SOL and Ripple. Although the total trading volume of altcoins once rebounded to the high point of 2021, 64% of trading volume remains concentrated in the top ten altcoins.

Cryptocurrency market liquidity has not disappeared but has shifted toward high-value assets.

Sharpe Ratio and Drawdown

From a risk-adjusted return perspective, the gap widens further. The CoinDesk 80 Index and various small-cap altcoin indices not only have deeply negative returns but also exhibit volatility comparable to or higher than stocks.

The CoinDesk 80 Index plunged 46.4% within a single quarter; the MarketVector small-cap index fell below pandemic lows after experiencing another downturn in November.

The overall altcoin indices repeatedly suffered index-level, sharp drawdowns: over 30% in 2024 for Kaiko’s small-cap index; a 46% crash for the CoinDesk 80 Index in the first quarter of 2025; and again, near 2020 lows for small-cap indices at the end of 2025.

In contrast, the S&P 500 and Nasdaq 100 achieved cumulative returns of 25% and 17% respectively over two years, with maximum drawdowns only in the mid to high single digits. The U.S. stock market, though volatile, remains largely controllable; meanwhile, the volatility of cryptocurrency indices is highly destructive.

Even considering the high volatility of altcoins as a structural feature, their risk-adjusted returns from 2024 to 2025 are still far below those of holding the U.S. stock market indices.

From 2024 to 2025, the overall altcoin index’s Sharpe ratio is negative; in contrast, the S&P and Nasdaq indices, even without volatility adjustments, display strong Sharpe ratios. After volatility adjustment, the gap widens further.

Bitcoin Investors and Cryptocurrency Liquidity

The first insight from these data is the trend of liquidity centralization and shifting toward high-value assets. Bloomberg and Whalebook reports on the MarketVector small-cap index both indicate that since the beginning of 2024, small-cap altcoins have continued to underperform, with institutional funds flowing into Bitcoin and Ethereum ETFs.

Combined with Kaiko’s findings, despite the rise in trading volume share back to 2021 levels, funds are concentrated in the top ten altcoins. The market trend is very clear: liquidity has not fully exited the cryptocurrency market but has shifted toward high-value assets.

The once-booming altcoin bull market was essentially a basis trade strategy rather than a structural asset outperformance. In December 2024, CryptoRank’s altcoin bull market index soared to 88 points, then crashed to 16 points by April 2025, erasing all gains.

The 2024 altcoin bull market ultimately turned into a classic bubble burst; by mid-2025, the entire altcoin portfolio nearly retraced all gains, while the S&P and Nasdaq indices continued their compound growth.

For financial advisors and asset allocators considering diversification beyond Bitcoin and Ethereum, CoinDesk’s data offers a clear case study.

As of mid-July 2025, the CoinDesk 5 index, tracking large caps, achieved a modest double-digit increase year-to-date, while the diversified altcoin index CoinDesk 80 plunged nearly 40%, with a correlation of 0.9 between them.

Allocating to small-cap altcoins did not yield substantial diversification benefits but instead incurred much higher losses and drawdown risks compared to Bitcoin, Ethereum, and U.S. stocks, while still being exposed to the same macro drivers.

Current capital largely views most altcoins as tactical trading targets rather than strategic holdings. From 2024 to 2025, the risk-adjusted returns of Bitcoin and Ethereum spot ETFs are significantly superior, and U.S. stocks also performed well.

The liquidity in the altcoin market continues to concentrate in a few “institutional-grade coins,” such as SOL, Ripple, and other select tokens with independent positive factors or clear regulatory prospects. Asset diversification at the index level is suffering market pressure.

In 2025, the S&P 500 and Nasdaq 100 increased by about 17%, while the CoinDesk 80 cryptocurrency index declined by 40%, and small-cap cryptocurrencies declined by 30%.

What Does This Mean for Liquidity in the Next Market Cycle?

The market performance from 2024 to 2025 tested whether altcoins could achieve diversification value or outperform the market in an environment of rising macro risk appetite. During this period, U.S. stocks achieved two years of double-digit growth with manageable drawdowns.

Bitcoin and Ethereum gained institutional recognition through spot ETFs and benefited from easing regulatory conditions.

In contrast, the overall altcoin index not only generated negative returns and larger drawdowns but also maintained high correlation with large-cap cryptocurrencies and stocks, yet failed to provide any additional risk compensation for investors.

Institutional capital has always pursued performance. The five-year return of the MarketVector small-cap index is -8%, while the large-cap index increased by 380%. This disparity reflects that capital continues to migrate toward assets with clearer regulation, abundant liquidity in derivative markets, and robust custody infrastructure.

The sharp decline of 46% in the first quarter of the CoinDesk 80 Index, and a 38% drop in mid-July 2025, show that the trend of capital shifting toward high-value assets is not reversing but accelerating.

For Bitcoin and Ethereum investors considering allocating to small-cap tokens, the data from 2024 to 2025 provides a clear answer: the absolute returns of the overall altcoin portfolio underperform U.S. stocks, risk-adjusted returns are lower than Bitcoin and Ethereum; despite a high correlation of 0.9 with large-cap cryptocurrencies, it offers no meaningful diversification.