Small-Cap Crypto Tokens Reach Disheartening Four-Year Low, Signaling the End of the “Alt Season” Thesis

Analysis of Cryptocurrency and Stock Market Performance (2024-2025)

The comparative performance metrics of cryptocurrency and stock markets since January 2024 elucidate a significant convergence, suggesting that contemporary altcoin trading increasingly mirrors traditional stock trading paradigms.

Performance Metrics Overview

In the analysis of key financial indices, the S&P 500 exhibited an impressive return of approximately 25% in 2024, followed by a further 17.5% in 2025, culminating in a compounded growth rate nearing 47% over a biennial framework. Similarly, the Nasdaq-100 index delivered returns of 25.9% and 18.1% respectively during the same temporal span, resulting in a cumulative gain approximating 49%.

Contrarily, the CoinDesk 80 Index, which monitors the performance of the subsequent 80 crypto assets beyond the top 20, experienced a staggering decline of 46.4% in the first quarter of 2025 alone and was positioned at nearly 38% lower year-to-date by mid-July. The MarketVector Digital Assets 100 Small-Cap Index similarly plummeted to its nadir since November 2020 by late 2025, effectively erasing over $1 trillion from the aggregate cryptocurrency market capitalization.

Divergence Analysis

This observed divergence is not merely a statistical anomaly; rather, it underscores a profound disparity in risk-adjusted returns. Broad altcoin indices delivered negative returns accompanied by volatility levels that either matched or exceeded those of equities, while US stock indices achieved double-digit gains characterized by relatively controlled drawdowns. This incites an imperative inquiry for Bitcoin investors: Does diversification into smaller crypto assets confer any risk-adjusted advantage, or does it merely amplify exposure to a negative Sharpe ratio while retaining an equity-like correlation?

Evaluating Credible Altcoin Indices

To facilitate this analysis, CryptoSlate conducted a comprehensive examination of three pivotal altcoin indices:

• CoinDesk 80 Index: Launched in January 2025, this index tracks the next tier of 80 assets following the CoinDesk 20, thus providing a diversified asset basket beyond Bitcoin and Ethereum.
• MarketVector Digital Assets 100 Small-Cap Index: This index captures the 50 smallest tokens within a broader basket of 100 assets and serves as a barometer for lower-end market assets.
• Kaiko’s Small-Cap Index: Notably more research-oriented than tradable, this index offers a quantitative lens through which to assess smaller asset cohorts.

Together, these indices provide a comprehensive spectrum: encompassing broad altcoin baskets, high-beta micro-cap assets, and quantitative research perspectives, all converging on similar narratives regarding performance and volatility.

Equity Baseline Performance Comparison

The baseline for equity performance is straightforward. Large-cap US indices realized mid-20s returns in 2024 and high-teens returns in 2025 with relatively shallow drawdowns; notably, the S&P 500’s most significant intra-year pullback during this period remained in the mid-teens while the Nasdaq-100 sustained a resolute upward trajectory. Both indices exhibited compounded returns year over year without relinquishing substantial gains.

In stark contrast, broad altcoin indices charted a markedly different trajectory. According to reports from CoinDesk Indices, the CoinDesk 80 registered an alarming -46.4% return in just the first quarter of 2025, while its large-cap counterpart, the CoinDesk 20, experienced a comparatively modest decline of -23.2%. By mid-July 2025, the CoinDesk 80 languished at approximately -38% year-to-date, juxtaposed against gains of between 12% to 13% for the CoinDesk 5—a benchmark tracking Bitcoin, Ethereum, and three additional major cryptocurrencies.

This correlation dynamic was aptly encapsulated by Andrew Baehr from CoinDesk Indices when he articulated to ETF.com that there exists “identical correlation” yet “completely different P&L.” Specifically, while both the CoinDesk 5 and CoinDesk 80 demonstrated a correlation coefficient of approximately 0.9—indicating synchronized movement—one index yielded low double-digit gains whereas its counterpart suffered losses nearing -40%. Consequently, it can be inferred that any diversification benefits derived from holding smaller altcoins were negligible at best while incurring significant performance penalties.

Sharpe Ratios and Drawdown Analysis

The evaluation of risk-adjusted returns further consolidates these findings. The CoinDesk 80 and small-cap altcoin indices yielded profoundly negative returns concomitant with volatility levels comparable to or exceeding those found within equity markets. The CoinDesk 80’s precipitous -46.4% decline transpired within a single quarter; similarly, the MarketVector small-cap index plummeted to pandemic-era lows by November following yet another downturn.

Broad alt indices endured multiple peak-to-trough movements exceeding -50%, as evidenced by Kaiko’s reporting of over -30% declines within small caps throughout 2024 and the aforementioned -46% for the CoinDesk 80 in Q1 of 2025. In stark contrast, both the S&P 500 and Nasdaq-100 achieved back-to-back total returns exceeding +25%/17%, registering drawdowns confined to mid-teen percentages at their most severe. While US equities exhibited volatility that was controlled and manageable, crypto indices were characterized by destructive volatility.

Even when accounting for inherent higher volatility associated with altcoins as a structural characteristic, their risk-reward payoff during both years was subpar compared to holding US equity indices. Broad alt indices recorded negative Sharpe ratios throughout the specified period while both S&P and Nasdaq indices delivered robustly positive Sharpe ratios prior to any adjustments for crypto’s escalated volatility—after adjustments were applied, this disparity further expanded.

The Implications for Bitcoin Investors and Crypto Liquidity Dynamics

The implications surrounding liquidity concentration and quality migration are pivotal in contextualizing these findings. Coverage from Bloomberg and Whalebook regarding the MarketVector small-cap index highlighted that since early-2024 smaller altcoins have consistently lagged; institutional inflows have predominantly shifted towards Bitcoin and Ethereum exchange-traded products instead.

This trend is corroborated by Kaiko’s observations that while alt volume dominance has reverted to levels reminiscent of early-2021, it remains concentrated predominantly within the top ten altcoins—signifying liquidity movement towards higher-quality assets rather than an exodus from cryptocurrency altogether.

The phenomenon referred to as “alt season” functioned more as a basis trade than indicative of structural outperformance—the CryptoRank altseason index surged to approximately 88 by December of 2024 before collapsing back to merely sixteen by April of 2025—a full cyclical retracement.

The preceding alt season reflected classic blow-off characteristics; however, by mid-2025 broad baskets had relinquished most gains while both the S&P and Nasdaq continued their compounding trajectory. For advisors and allocators considering diversification strategies beyond Bitcoin and Ethereum holdings, data from CoinDesk provides compelling evidence against such moves.

A concentrated large-cap crypto index (CoinDesk 5) achieved low double-digit gains year-to-date by mid-2025 compared with significant losses nearing -40% for diversified alt indices such as CoinDesk’s CD80—despite both reflecting similar directional correlations around approximately zero-point-nine (0.9). Investors therefore failed to derive meaningful diversification benefits from increasing exposure to smaller alts while accepting vastly inferior returns alongside heightened drawdown risks compared to either Bitcoin/Ethereum or US equities—while maintaining concurrent directional exposure to identical macroeconomic drivers.

This capital allocation behavior suggests that most alternative cryptocurrencies are being perceived predominantly as tactical trades rather than substantive structural investments. Spot Bitcoin and Ethereum ETFs have provided markedly superior risk-adjusted returns across both years when juxtaposed against broader altcoin holdings as well as traditional equities.

The liquidity landscape surrounding altcoins is increasingly consolidating around a narrow array of “institutional-grade” names such as Solana and XRP alongside select others exhibiting independent catalysts or greater regulatory clarity—all signaling punitive measures against index-level breadth within this sector.

Conclusions Regarding Future Liquidity Cycles

The periods spanning through both years tested whether altcoins could provide genuine diversification value or exceed performance thresholds amidst an overarching risk-on macroeconomic environment characterized by robust gains among US equities accompanied by manageable drawdowns.

The institutional acceptance garnered by Bitcoin and Ethereum through spot ETFs has played an instrumental role in enhancing their market positions alongside benefiting from regulatory de-escalation efforts across various jurisdictions.

Conversely, broad altcoin indices have incurred substantial losses coupled with deeper drawdowns while maintaining high correlation levels with both large-cap cryptocurrencies and broader equity markets—yet without offering commensurate compensation for any additional risks assumed therein.

The directional flow of institutional capital echoes this performance narrative: The MarketVector small-cap index’s five-year return standing at -8%, juxtaposed against its large-cap counterparts’ staggering +380% growth underscores capital migration towards assets characterized by regulatory clarity alongside robust derivative markets coupled with sound custody infrastructure frameworks.

The alarming -46% decline recorded within CoinDesk’s CD80 during Q1 along with subsequent cumulative losses approximating -38% year-to-date by mid-July reinforce notions that such migration has accelerated rather than reversed course amidst prevailing market conditions.

For investors currently holding positions in BTC/ETH contemplating potential diversification into smaller crypto assets: data compiled across both years provides unequivocal insights indicating that broad alt baskets have consistently underperformed relative not only to US equities on an absolute basis but also relative to Bitcoin and Ethereum on a risk-adjusted basis—failing conspicuously to deliver any discernible diversification benefits despite maintaining near-zero point-nine correlations with larger cap cryptocurrencies.