Whalesbook
The cryptocurrency market is experiencing a significant selloff, with smaller, riskier tokens facing the steepest declines. The MarketVector Digital Assets 100 Small-Cap Index reached its lowest point since November 2020. Bitcoin has erased its 2025 gains, and altcoins are performing poorly, diverging from past bull market trends where they often outpaced larger cryptocurrencies. This shift is partly attributed to institutional investor focus on Bitcoin and Ether exchange-traded products approved in the US. The downturn also poses a risk to planned exchange-traded funds for smaller cryptocurrencies.
The cryptocurrency market is currently experiencing a prolonged selloff, with speculative, smaller digital assets bearing the brunt of the downturn. The MarketVector Digital Assets 100 Small-Cap Index, which tracks the 50 smallest digital assets within a 100-asset basket, fell to its lowest level since November 2020 on Sunday before recovering slightly. This sharp decline occurred as Bitcoin, the leading cryptocurrency, reversed its early October gains for 2025. Altcoins, which typically serve as a gauge for risk appetite in the more speculative crypto segments, have significantly underperformed larger cryptocurrencies since the start of 2024.
Historically, during bull markets, small-cap crypto indices often outperformed their large-cap counterparts due to traders' appetite for high-risk, high-reward investments. However, this trend reversed last year following the US approval of Bitcoin and Ether exchange-traded products, which have become a primary destination for institutional investment flows. Pratik Kala, portfolio manager at Apollo Crypto, noted that 'a rising tide doesn’t lift all boats — it only lifts the quality ones,' suggesting a market correction favouring more established assets.
The current malaise among altcoins threatens to disrupt plans by issuers to launch a variety of exchange-traded funds (ETFs) tied to these smaller tokens. As of mid-October, approximately 130 ETF applications linked to smaller cryptocurrencies were awaiting approval from the US Securities and Exchange Commission (SEC). One notable example is a product linked to Dogecoin (ticker DOJE), which began trading in September but has not seen any inflows since October 15th, with Dogecoin itself declining 13% in the past month.
Over the last five years, the small-cap crypto index has dropped nearly 8%, contrasting sharply with a roughly 380% surge in its large-cap counterpart, highlighting the significant loss of favour for smaller digital assets. The broader crypto market is still recovering from a major selloff on October 10th, which led to approximately $19 billion in liquidations and wiped out over $1 trillion in total market value across all tokens. Since then, risk appetite has diminished, and traders are actively avoiding the most speculative virtual currencies.
Impact
This news significantly impacts crypto investors, particularly those holding smaller altcoins or considering speculative investments. It signals a shift towards quality and established assets like Bitcoin and Ether, driven by institutional adoption via ETFs. The viability of new ETF products for smaller cryptocurrencies is now in question, potentially limiting future growth avenues for these assets. The overall sentiment in the crypto market has turned more cautious, with investors prioritizing stability over high-risk bets.
Impact Rating: 7/10
Difficult Terms Explained:
Altcoins: Cryptocurrencies other than Bitcoin. They are often considered more speculative.
Exchange-Traded Products (ETPs): Financial products traded on stock exchanges that track an underlying asset, index, or commodity. In this context, it refers to Bitcoin and Ether ETFs.
Retail Traders: Individual investors who trade securities or other financial instruments on their own behalf.
Institutional Flows: The movement of money into or out of financial markets by large organizations such as pension funds, insurance companies, and hedge funds.
Market Value: The total value of all outstanding units of a security or asset, calculated by multiplying the price by the number of units.
Liquidations: In crypto, this refers to the forced selling of an asset when a trader's margin in a leveraged position is insufficient to cover potential losses.
Virtual Currencies: A digital or electronic currency that can be used as a medium of exchange but lacks legal tender status and is not typically backed by any government.
Hedge Fund: A pooled investment fund that trades relatively liquid assets and is able to sell short, use leverage, and enter into other complex financial transactions. Often targets sophisticated investors.
