Source: Crypto Compound
Translation: Shaw Golden Finance
The cryptocurrency market does not operate in a linear fashion—it develops in a spiral. Bitcoin lays the foundation, Ethereum acts as a "gateway," and other altcoins follow closely behind. To seize the next major market movement, understanding this spiral development is crucial. At the core of all this is one indicator: ETH/BTC ratio.
Let’s analyze this.
Ethereum: The Risk Gateway
Ethereum is where traders test their risk appetite.
Bitcoin is often seen as a macro hedge tool. Institutions view it as digital gold, a store of value, or a means to hedge against fiat currency devaluation. But Ethereum plays a different role—it is the first step into higher-risk cryptocurrency investments.
When institutions and experienced traders start allocating ETH, it indicates their confidence. It shows they are willing to take a step further along the risk curve.
Historical experience shows that once ETH becomes a trading hotspot, liquidity does not stop there—liquidity flows into other mainstream currencies and then into the broader altcoin market.
ETH/BTC: The Market Risk Barometer
One ratio rules them all. The ETH/BTC chart is the "main indicator" of the cryptocurrency risk cycle. When ETH outperforms Bitcoin, it usually aligns with the altcoin cycle. The logic is simple: ETH's strength indicates that market demand for risk assets has surpassed that of Bitcoin.
The bottom of ETH/BTC often marks the beginning of a new market cycle.
The top of ETH/BTC usually coincides with the peak of altcoin frenzy.
It can be seen as a risk barometer: when ETH remains strong and rises relative to BTC, it indicates that funds are willing to flow into higher-risk assets, which is a positive signal.
Liquidity Always Follows ETH
The impact of ETF fund flows is much greater than people realize.
When Ethereum ETFs see inflows, this liquidity does not just stay with Ethereum. It spreads to the spot market, derivatives market, and eventually to altcoin trading pairs. An increase in Ethereum trading volume means:
Smaller trading spreads.
Higher liquidity in ETH trading pairs.
Lower volatility reduces costs when shifting to alternative investments.
In simple terms: Ethereum's strength makes it easier and cheaper for funds to flow into altcoins. This is why institutional investment in Ethereum indirectly drives the entire market.
Rotation Roadmap: Bitcoin → Ethereum → Mainstream Altcoins → Other Altcoins
Every cycle has its patterns.
Cryptocurrency cycles do not change randomly. In past cycles, there has been a predictable repeating sequence:
Bitcoin leads the way. As Bitcoin establishes trend strength, market confidence increases.
Ethereum follows closely. Institutions and traders increase their holdings of ETH, indicating their willingness to take on more risk.
Mainstream altcoins begin to rise. Coins like SOL, BNB, AVAX, and ADA start to outperform the market.
Mid-sized ecosystem altcoins rise. Narrative-driven coins related to infrastructure and ecosystems become the focus.
Speculative low-market-cap altcoins soar. Optimism at the end of the economic cycle drives funds into highly speculative small-cap altcoin markets.
Ethereum's outperformance against Bitcoin indicates that we are transitioning from the first phase to the second phase—large altcoins are about to take off.
Narrative Spillover: Ethereum Drives Its Ecosystem
Ethereum's strong development drives everything related to it.
When Ethereum performs strongly, narratives related to its ecosystem also heat up, including:
DeFi protocols (Uniswap, Aave, Curve).
Layer 2 scaling solutions (Arbitrum, Optimism, zkSync).
Staking and liquid staking tokens (Lido, Rocket Pool).
Projects still primarily operating on Ethereum related to NFTs.
Investors naturally look for the "next opportunity." Projects related to Ethereum are the preferred choice before funds rotate to other chains.
Institutions Buy ETH Through ETFs → Altcoins Benefit Indirectly
The ETF era has changed perceptions.
Institutional investors buying ETH through ETFs not only benefits Ethereum but also changes how people view cryptocurrencies. If ETH is recognized by institutions as an asset, the notion that cryptocurrency is just Bitcoin becomes normalized.
This psychological shift prompts fund allocators to look at other coins. Retail investors follow the same logic: "If Ethereum (ETH) can be invested in, then what about SOL or AVAX?" The result is that funds flow into the broader altcoin market.
Beware of False Signals
Not every Ethereum breakout signals the arrival of altcoin season. Ethereum can lead temporarily, but it does not necessarily trigger a full rotation. For example, during periods of global liquidity weakness, if ETH/BTC rises, the altcoin rally may quickly fade.
The difference between false signals and true signals lies in whether they can be confirmed:
Ethereum's dominance increases with the influx of ETF funds.
As demand for Ethereum spot increases, broader derivatives trading volume is also rising.
Participation in large and mid-sized altcoins is high.
Without this confirmation, Ethereum's strength may just be an illusion.
Important Technical Levels
Charts tell us the timing.
Over the years, ETH/BTC has issued reliable signals at key levels. Historically:
Breaking and holding above 0.04 has triggered strong altcoin rebounds.
Sustaining above this area typically marks the beginning of altcoin season.
Coupled with confirmation of Ethereum spot fund inflows and rising open interest in perpetual contracts for major coins like SOL, BNB, or AVAX, you have a "green light" signal.
Why This Cycle May Be Stronger
The backdrop this time is different.
Previous altcoin cycles were mainly driven by retail speculation and hype. This time, there is a structural difference: institutional fund inflows. Spot Ethereum ETFs provide a regulated channel for billions of dollars to flow into Ethereum. Subsequently, this liquidity creates a ripple effect throughout the market.
Combine the following:
Layer-2 scaling has matured. Real-world use cases drive ETH demand.
Staking yields. ETH is a productive asset, not just a speculative one.
Narrative spillover. From the revival of DeFi to cross-chain interoperability.
This market movement is not just speculative rotation; it reflects a maturation of market structure, with Ethereum leading on both institutional and narrative fronts.
What Traders Should Focus On
A clear checklist helps filter out noise.
To navigate this situation, pay attention to three main signals:
ETH/BTC ratio. Sustained above 0.04.
ETF fund inflows. Strong and stable demand for Ethereum spot ETFs.
Derivatives confirmation. Increased positions and trading volume for mainstream coins like SOL, BNB, AVAX.
When these factors align, the probability of a sustained altcoin rally significantly increases.
The story of the altcoin cycle always begins with Ethereum. Bitcoin sets the tone, but Ethereum indicates when the market is ready to take on risk. The ETH/BTC ratio is your compass—showing when to expect funds to shift towards altcoins.
Liquidity follows ETH, its ecosystem narratives continue to spread, and institutional confidence in ETH brings a halo effect to the overall market. But remember: not all signals are genuine. Pay attention to confirmations before making significant bets.
With the push from Ethereum ETFs, this cycle could be the strongest one yet.
If Ethereum leads, the rest will follow.
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