The introduction of spot Bitcoin (BTC) exchange-traded funds (ETFs) has had a significant impact on the cryptocurrency market, not only for institutions but also for retail investors. This has resulted in a divided market, and we can expect a major rebalancing as a consequence.
On one side, we have retail investors who can now gain exposure to Bitcoin through their advisors investing in spot BTC ETFs. It won’t be long before Bitcoin becomes as common in these investors’ portfolios as gold. On the other side, we have the “OGs” of the crypto market, the early adopters who fully embrace the principles of Web3. They invest in Bitcoin because of its decentralization and resistance to censorship. However, now that everyone is adding Bitcoin to their portfolios, they have lost their first-mover advantage, and they are ready to rebel.
From the perspective of an early Bitcoin investor, the world’s largest cryptocurrency has strayed far from its original purpose of replacing the broken payment system. It has inadvertently become part of the very system it was designed to disrupt. It’s like discovering a hidden gem of a restaurant, only to see it become popular and taken over by a large corporation. The quality declines, the original purpose is forgotten, and it becomes difficult to get a table.
It’s not just about Bitcoin’s purpose, though. As more buyers compete for a limited supply of this finite asset, the price of Bitcoin will rise. However, it will primarily benefit the big players, as even the management fees they earn from BTC spot ETFs will bring in billions. While crypto-savvy retail buyers can still acquire Bitcoin directly through crypto exchanges, giving up most of the profits to the world’s largest asset managers goes against the ethos of Web3.
We are witnessing a polarization of the crypto market between retail investors willing to pay the price to ride the Bitcoin train and those who are used to getting the ride for free. The latter group will simply go elsewhere, seeking a market that remains true to the principles of crypto and offers direct access to blockchain without intermediaries.
This will be the catalyst for the long-awaited altcoin season. Bitcoin maximalists diversifying their portfolios, crypto OGs looking for higher returns as Bitcoin goes mainstream, and true believers in the decentralized dream of crypto will all play a role.
Altcoins have lagged behind Bitcoin in terms of performance so far, but we are starting to see signs of a reversal. Ethereum (ETH) has been posting higher highs and higher lows against Bitcoin in recent weeks, indicating a potential breakout soon. When this happens, altcoins will follow suit, driven by Bitcoin investors seeking alternatives.
As more institutions and traditional investors add Bitcoin to their portfolios, the crypto retail market will become more polarized. During this reallocation of assets into altcoins, several altcoins will rise to the ranks of “too big to fail” that have traditionally been reserved for Bitcoin. This cycle will separate the promising projects from the rest and determine which altcoins will thrive in the next bull market.
However, not every retail investor will completely abandon Bitcoin. Bitcoin will become the stabilizer in their portfolios, providing a reliable and less volatile core while allowing for higher-risk investments. Nevertheless, as Bitcoin grows, it will lose some of its most dedicated early adopters as they seek more decentralized alternatives and greater gains.
Regardless of how this rebalancing unfolds, institutions will profit either way. Even if there is a major retail exodus, it will have little impact on BTC’s price direction due to its scarcity, growing demand, and institutional inflows.
However, it will have a significant impact on the future of decentralized finance (DeFi). With a total value locked (TVL) of just over $100 billion to date, compared to Bitcoin’s $1.4 trillion market cap, even a relatively small rotation into altcoins could greatly impact DeFi’s growth. If Bitcoin maximalists embrace altcoins with the same enthusiasm they have for BTC, we can expect explosive growth in the altcoin market. Regardless of which side of the camp you’re on, get ready for an exciting summer.
Lucas Kiely is the Chief Investment Officer for Yield App, overseeing investment portfolio allocations and leading the expansion of a diversified investment product range. He has extensive experience in the financial industry, previously serving as the CIO at Diginex Asset Management and holding senior positions at Credit Suisse and UBS.
This article provides general information and should not be taken as legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.