Altseason: Frontrunning the Fed

A Federal Reserve rate cut now appears imminent, driven by easing inflation, the failure of tariff expectations to materialize, and mounting political pressure. Historically, financial markets begin repositioning before policy changes. In crypto, this shift if not just about price - it is about the progression of liquidity and capital through distinct phases of market structure. Understanding these phases helps identify where we are today and where capital may flow next.

Inflation has fallen below pre-cut levels from last year. The real economic impact of tariffs has been minimal, removing a key reason for holding rates steady. Market participants now expect easier policy, with a growing consensus for a 25-basis-point cut and some speculation on 50 basis points. Historically, this macro shift sets the stage for a full crypto market cycle, beginning with Bitcoin leadership and eventually broadening to a full altcoin expansion.

It is important to understand where we are at in the macro backdrop to cross-validate positioning within the crypto market structure. There are four main phases to the crypto market cycle:

Source: Level III Capital

Phase 1: Bitcoin Leadership

The first sign of structural change comes when liquidity concentrates in Bitcoin. Capital prefers the most liquid and institutionally recognized asset. This shift often reflects a change in sentiment from caution to opportunity. Historically, trading volumes have consolidated around BTC before broader participation develops. In the 2020 easing cycle, Bitcoin dominance peaked before capital rotated to Ethereum, which gained market share for the next six months.

Phase 2: Ethereum Leadership

The next structural change occurs when Ethereum begins outperforming Bitcoin. This is less about price levels and more about market participants recognizing that conditions favor higher-beta assets. The relative risk-reward is far higher. Liquidity begins diversifying into Ethereum, and discussions about its potential to overtake Bitcoin in market share - commonly called the “flippening” - re-emerge. This transition signals that investor confidence is broadening beyond the most conservative crypto allocation.

Phase 3: Large Cap Altcoins

As Ethereum maintains leadership, liquidity flows into other large cap assets such as Solana. Trading activity becomes more evenly distributed among several networks. This stage marks a structural broadening of the market, where leadership is no longer concentrated in one or two assets. Stand-alone Layer-1 assets experience a renaissance during this phase.

Phase 4: "Altseason"

The final phase occurs when capital is no longer constrained by market cap or fundamentals, and liquidity becomes dispersed across a wide range of assets. Mid-caps, low-caps, and even meme coins begin to rally. These assets typically function as underlying beta plays to Layer-1 networks, relying on the native token to operate a financial function. Price behavior often plays catch-up to the native token. Structurally, this is the point where the market is fully risk-on, but it is also the phase most prone to instability and sharp reversals.

Current Positioning

Current conditions suggest we are in the latter half of Phase 1 moving into Phase 2. Bitcoin dominance remains high, but Ethereum is beginning to close the gap in both trading volumes and performance momentum. Large caps such as Solana and Sui have seen increased liquidity over the last quarter, hinting at the early signs of Phase 3 rotation.

Previous cycles show that Altseason phases tend to follow a consistent order, with each phase lasting weeks to months depending on macro conditions and liquidity availability.

A disciplined approach in this environment begins with recognizing the structural sequence. Early positioning in Bitcoin captures the start of the cycle. Transitioning to Ethereum and large caps as the structure shifts allows for higher participation in the second wave of growth. Managing the pace of allocation into smaller assets is critical to controlling exposure during the more volatile final stages.

With the Federal Reserve preparing to cut rates, the crypto market is likely entering a new structural phase. Recognizing the sequence of capital flow - from Bitcoin, to Ethereum, to large caps, and eventually to the full Altseason - is key to positioning effectively. In a reflexive, fast-moving market like crypto, anticipating structural transitions offers a decisive edge. More importantly, actively managing the volatility and downside risk puts one in a stronger position to capture the upside and time the end of the expansion phases.

In crypto, survival is the first step to outperformance.