Bitcoin ETF Reshapes Encryption Investment Landscape, Alts' Prospects Are Worrisome

The emergence of Bitcoin exchange-traded products (ETFs) is fundamentally changing the investment logic of the encryption market. For a long time, the encryption market has followed an almost predictable pattern of capital rotation: the rise in Bitcoin prices attracts mainstream attention and liquidity, followed by a flood of funds into alts, driving up the value of low-market-cap assets, a phenomenon known as "altcoin season." However, this cycle, once taken for granted, is showing signs of structural collapse.

In 2024, the spot Bitcoin ETF attracted a record inflow of $129 billion. This provides retail and institutional investors with an unprecedented channel to invest in Bitcoin, while also creating a vacuum that siphons funds away from speculative assets. Institutional investors can now access encryption in a secure and regulated manner, without taking on the high risks of the altcoin market. Many retail investors have also found that ETFs are more attractive than searching for the next high-return token.

This transition is happening in real time. If funds continue to be locked in structured products, alts will face the risk of reduced market liquidity and decreased correlation.

The Rise of Structured Encryption Investment

Bitcoin ETF provides investors with an alternative to high-risk, low-market-cap assets. Through structured products, investors can gain leverage, liquidity, and regulatory transparency. Retail investors who once fueled speculation in alts can now directly invest in Bitcoin and Ethereum ETFs, which eliminate concerns about self-custody, reduce counterparty risk, and align with traditional investment frameworks.

Institutional investors are more inclined to avoid altcoin risks. Hedge funds and professional trading platforms that once chased high returns in low liquidity altcoins can now deploy leverage through derivatives or gain exposure on traditional financial tracks via ETFs.

As the ability to hedge through options and futures has increased, the motivation to speculate on illiquid, low-volume alts has significantly diminished. This trend has been further reinforced by a record outflow of $2.4 billion in February and the arbitrage opportunities created by ETF redemptions, pushing the encryption market into an unprecedented state of discipline.

Shift in Venture Capital Strategies

Venture capital (VC) firms have been important supporters of the altcoin season, injecting liquidity into emerging projects and weaving grand narratives for new tokens. However, as leverage becomes more accessible, capital efficiency has become a key priority, and VCs are rethinking their strategies.

In the encryption field, the historical growth rate of Bitcoin has become the benchmark for expected returns. Over the past decade, Bitcoin's compound annual growth rate (CAGR) has averaged 77%, significantly surpassing traditional assets like gold (8%) and the S&P 500 index (11%). Even in the past five years, including bull and bear market cycles, Bitcoin's CAGR has remained at 67%.

Based on this benchmark, if venture capitalists deploy capital in Bitcoin or related enterprises at this growth rate, the total investment return over five years will be approximately 1,199%, meaning the investment will increase nearly 12 times. This makes Bitcoin a fundamental standard for assessing risk-adjusted returns in the encryption space.

In 2024, the number of VC transactions decreased by 46%, although overall investment volume saw a rebound in the fourth quarter. This marks a shift towards more selective, high-value projects rather than indiscriminate speculative funding. If venture capital further shifts towards structured investments through ETFs rather than direct investments in high-risk startups, new altcoin projects may face serious consequences.

Oversupply and New Market Realities

The market landscape has undergone fundamental changes. A large number of altcoins competing for attention have caused serious saturation issues. Data shows that there are currently over 40 million tokens in the market. An average of 1.2 million new tokens are launched each month in 2024, and over 5 million tokens have been created since the beginning of 2025.

As institutions lean towards structured investments, and with a lack of retail-driven speculative demand, liquidity is no longer flowing into alts as it once did. This reveals a harsh reality: most alts will struggle to survive. Some analysts warn that without a fundamental shift in market structure, most of these assets are unlikely to survive.

In an era where funds are locked in ETFs and perpetual contracts instead of freely flowing into speculative assets, the traditional strategy of waiting for Bitcoin's dominance to weaken before turning to alts may no longer apply. The crypto market has changed dramatically. The days of easy, cyclical altcoin rallies may be replaced by an ecosystem where capital efficiency, structured financial products, and regulatory transparency dictate the flow of funds.

The ETF is changing the way people invest in Bitcoin and fundamentally altering the liquidity distribution of the entire market. For investors who base their strategies on the assumption that alts will flourish after every Bitcoin rise, it may now be time to reconsider their approach. With the maturation of the market, the rules of investment may have undergone fundamental changes.