Altcoin Cycle Signals: Why Ethereum Leads the Wave

Source: Crypto Compound

Compiled by: 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 trend, it is crucial to understand this spiral development. At the core of all this lies one key indicator: the ETH/BTC ratio.

Let's analyze it.

Ethereum: Gateway to Risk

Ethereum is a place for traders to test their risk appetite.

Bitcoin is often viewed as a macro hedge tool. Institutions see it as digital gold, a means of value storage, or a way to hedge against fiat currency depreciation. However, 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 that they are confident. This shows they are willing to take another step forward on the risk curve.

Historical experience shows that once ETH becomes a trading hotspot, liquidity will not stop there - liquidity will flow to other mainstream currencies and then to the broader altcoin market.

ETH/BTC: Market Risk Barometer

A single 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 the market's demand for risk assets has surpassed that of Bitcoin.

The bottom of ETH/BTC often marks the beginning of a new market cycle.

The peak of ETH/BTC usually coincides with the peak of altcoin frenzy.

It can be seen as a risk barometer: when ETH holds strong and rises against 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 capital flows is much greater than people realize.

When funds flow into the Ethereum ETF, this liquidity does not just stay with Ethereum. It will spread to the spot market, the derivatives market, and ultimately to altcoin trading pairs. The increase in Ethereum's trading volume means:

Smaller trading price differences.

The liquidity of ETH trading pairs is higher.

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 → Major altcoins → Other altcoins

Every cycle has its own规律.

The cycles of cryptocurrency do not change randomly. In past cycles, there has been a predictable repeating sequence:

Bitcoin leads the rally. As Bitcoin establishes trend strength, market confidence increases.

Ethereum follows closely behind. Institutions and traders are increasing their holdings of ETH, indicating their willingness to take on more risk.

Mainstream altcoins have started to rise. Coins like SOL, BNB, AVAX, and ADA are beginning to outperform the market.

Medium-sized ecosystem altcoins are rising. Narrative-driven coins related to infrastructure and ecosystems are in the spotlight.

Speculative low market cap altcoins are surging. The optimism at the end of the economic cycle is driving funds into the highly speculative small-cap altcoin market.

Ethereum's performance has outpaced Bitcoin, indicating that we are transitioning from the first phase to the second phase—large altcoins are about to take off.

Narrative Overflow: Ethereum Drives Its Ecosystem

The strong development of Ethereum has driven everything related to it.

When Ethereum performs strongly, narratives related to its ecosystem will also heat up, including:

DeFi protocols (Uniswap, Aave, Curve).

Layer 2 scaling solutions (Arbitrum, Optimism, zkSync).

Staking and liquid staking tokens (Lido, Rocket Pool).

Still mainly running on Ethereum related to NFT projects.

Investors will naturally look for the "next opportunity." Projects related to Ethereum are the preferred choice before funds rotate to other chains.

Institutions benefit indirectly from purchasing ETH through ETFs → altcoins.

The era of ETFs has changed people's mindset.

Institutional investors purchasing ETH through ETFs not only benefits Ethereum but also changes people's perceptions of cryptocurrency. If ETH is recognized as an asset by institutions, then the notion that cryptocurrency is just Bitcoin will become normalized.

This psychological shift has prompted capital allocators to look towards other cryptocurrencies. Retail investors follow the same logic: "If Ethereum (ETH) is investable, then what about SOL or AVAX?" The result is that capital has flowed into a broader altcoin market.

Beware of false signals

Not every Ethereum breakout signifies the arrival of altcoin season. Ethereum may lead temporarily, but it doesn't necessarily trigger a broad rotation. For example, during periods of global liquidity weakness, if ETH/BTC rises, the momentum of altcoins may quickly fade.

The difference between false signals and true signals lies in whether they can be verified:

The dominance of Ethereum is rising with the increase in ETF capital inflows.

As the demand for Ethereum spot increases, the trading volume of broader derivatives is also on the rise.

The participation of large and medium-sized altcoins is very high.

Without such confirmation, Ethereum's strength may just be an illusion.

Important technical level

The chart tells us the timing.

For many years, ETH/BTC has sent reliable signals at key levels. Historically:

Breaking through and stabilizing above 0.04 triggered a strong rebound in altcoins.

A trend that remains above this area typically signals the beginning of altcoin season.

In addition to the confirmation of capital inflow into Ethereum spot, as well as the increase in open interest for perpetual contracts of major cryptocurrencies like SOL, BNB, or AVAX, you have a "green light" signal.

Why this cycle may be stronger.

This time the background is different.

The previous cycles of altcoins were mainly driven by retail speculation and hype. However, this time there is a structural difference: institutional capital inflow. The spot Ethereum ETF provides a regulated channel for billions of dollars to flow into Ethereum. Subsequently, this liquidity triggers a chain reaction throughout the market.

Combine the following:

Layer-2 scalability matures. Real-world use cases drive ETH demand.

Staking rewards. ETH is a productive asset, not just a speculative asset.

Narrative overflow. From the complexities of DeFi to cross-chain interoperability.

This round of market movement is not just speculative rotation, but rather a maturation of market structure, with Ethereum leading both in institutional and narrative aspects.

What should traders pay attention to?

A clear list helps filter out the noise.

To cope with this situation, please pay attention to three main signals:

ETH/BTC ratio. Remains above 0.04.

ETF capital inflow. The demand for Ethereum spot ETFs is strong and stable.

Derivatives confirmation. The positions and trading volumes of mainstream cryptocurrencies such as SOL, BNB, and AVAX have increased.

When these factors are aligned, the probability of a sustained upward cycle for altcoins will significantly increase.

The story of altcoin cycles 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—it shows when to expect funds to shift towards altcoins.

Liquidity follows ETH closely, and the narrative of its ecosystem continues to spread, with institutional investors' confidence in ETH bringing a halo effect to the overall market. But please do not forget: not all signals are genuine. Please be cautious and confirm before making significant bets.

With the push of the Ethereum ETF, this cycle may be the strongest one to date.

If Ethereum leads, the rest will follow.