Market sentiment has shifted to panic, with risk aversion dominating the flow of funds
In September, the cryptocurrency market atmosphere changed dramatically, with 'altcoin retreat and large-cap coins as safe havens' becoming the core theme. According to the latest market data, the Fear and Greed Index, which reflects cryptocurrency market sentiment, has fallen to 44, below the neutral threshold of 50, marking a formal shift in the market from cautious optimism to the 'panic' range. This change in sentiment has directly driven a reconstruction of trading behavior — retail investors and some institutional investors, who previously entered due to short-term speculation in altcoins, are now accelerating the reduction of small and mid-cap tokens, while increasing their holdings in Bitcoin (BTC), Ethereum (ETH), and other large-cap assets that have stronger liquidity and market consensus to avoid the deep correction risks that the altcoin sector may face.
From the perspective of specific asset performance, leading coins show a trend of "divergent weakness." As the "weather vane" of the crypto market, Bitcoin's recent performance has continued to oscillate, with the monthly decline expanding to 5.38%, and prices repeatedly fluctuating in the range of $42,000 - $45,000, failing to break through previous key resistance levels, indicating a lack of bullish confidence. In contrast, Ethereum has seen a monthly increase of 9.44%, supported by favorable factors such as the progress of Layer 2 ecological expansion and continuous institutional inflow, making it one of the few "certain targets" in the current market, further attracting risk-averse funds.
Altcoins are facing dual pressures: urgent support levels and valuation discrepancies coexist.
The altcoin sector is currently experiencing the "pain of cooling enthusiasm." As liquidity withdraws from small and mid-cap tokens, the prices of most altcoins continue to decline, with some previously popular coins (such as MEME coins and certain public chain ecological tokens) seeing weekly drops of over 20%. Multiple crypto market analysts have issued warnings that if market panic further spreads, and there is a lack of new capital injection, the altcoin sector may collectively fall below key support levels — for example, the top 50 altcoins by market capitalization are currently priced close to the upward trend line since the second quarter of 2024; if the support level is breached, it could trigger a new wave of stop-loss selling, exacerbating downward pressure on the sector.
However, there is still a clear divide in market valuation judgments regarding altcoins. The bearish camp believes that the previous rise of altcoins largely relied on "market enthusiasm transmission" and "concept speculation," lacking practical application landing and cash flow support, and the current correction is an inevitable process of "valuation returning to a reasonable range"; while bullish analysts point out that after this round of correction, some altcoins with core technologies (such as AI + blockchain, decentralized storage) and stable community ecology have seen their price-to-book (PB) and price-to-sales (PS) ratios drop to historical lows, presenting "undervalued" investment opportunities, and short-term emotional suppression does not change long-term value.
Institutional fund movements are a key variable: Ethereum and Solana have been increased, while Bitcoin's dominance is declining.
The adjustment of institutional investors' fund allocations is profoundly impacting the asset structure of the crypto market. According to the latest report from digital asset analysis firm Glassnode, institutional entities, represented by corporate finance departments and digital asset trading companies (DATCO), have recently significantly increased their holdings in Ethereum and Solana (SOL) — in just the past two weeks, institutions' holdings of Ethereum increased by 123,000 coins, a month-on-month increase of 8.7%; for Solana, the net increase in holdings has reached 3.8 million coins, with a month-on-month increase of as much as 15.2%.
The "diversion effect" of institutional funds has directly led to a decline in Bitcoin's market dominance. Data shows that Bitcoin's market capitalization share (i.e., "Bitcoin dominance") has fallen from 65% at the beginning of this month to the current 58%, a monthly decrease of 7 percentage points, marking the largest single-month decline since November 2023. Analysts point out that the core logic behind institutions turning to Ethereum and Solana lies in the "differentiated layout of tracks": Ethereum, with its deflationary mechanism post-merge and explosive growth of Layer 2 ecology, has become the "core alternative for institutional crypto asset allocation"; while Solana has attracted institutional funds seeking high growth potential due to recent ecological recovery in decentralized finance (DeFi) and non-fungible tokens (NFT).
The market capitalization of altcoins has become a "window for observing market momentum," with the $1.15 trillion threshold drawing attention.
Although the altcoin sector is currently under overall pressure, the market is still closely monitoring a key indicator — the total market capitalization of altcoins. As of the time of writing, the total market capitalization of the altcoin sector is approximately $1.08 trillion, leaving about 6.5% upside potential to the critical threshold of $1.15 trillion. It is generally believed in the industry that $1.15 trillion is not only a peak point for the altcoin sector since March 2024 but also an important dividing line for the market to judge "whether altcoins can regain momentum."
If market sentiment improves, and funds flow back into small and mid-cap tokens, pushing the total market capitalization of altcoins to break through $1.15 trillion, it may signal that the crypto market will shift from "risk-off dominance" back to a "multi-rotation" phase, with quality altcoins that have seen significant corrections potentially experiencing a rebound; conversely, if the total market capitalization of altcoins continues to oscillate below $1.1 trillion, or even falls below the $1 trillion support level, it may further confirm the onset of the "altcoin bear market cycle," and market risk-averse sentiment may further escalate, with funds becoming more concentrated in leading assets such as Bitcoin and Ethereum.
