As Bitcoin and Ethereum continue to lead the crypto market with strong price gains and institutional interest, the rest of the altcoin sector appears to be losing momentum. Market analysts believe this growing divergence reflects a more mature, selective phase of the digital asset market—one that rewards liquidity and real-world use cases over speculation.

Bitcoin and Ethereum Capture Institutional Attention

Over the past several weeks, Bitcoin (BTC) has reached record highs, and Ethereum (ETH) has followed closely behind. In contrast, many smaller altcoins have struggled to maintain investor attention, with capital increasingly concentrated in the two largest cryptocurrencies.

According to Jeffrey Ding, Chief Analyst at HashKey Group, investors are gravitating toward assets with “high liquidity, clear narratives, and strong certainty.” He explains that institutional flows, such as exchange-traded fund (ETF) investments and corporate treasury allocations, are driving this shift toward Bitcoin and Ethereum.

“Under current macroeconomic conditions, the market’s structural divide is inevitable,” Ding noted, adding that smaller tokens are being left behind as liquidity and confidence cluster around top-tier assets.

Altcoins Struggle Despite Sector-Wide Growth

Data from CoinGecko shows that while major cryptocurrencies like Ethereum, XRP, and Solana have achieved double-digit year-to-date (YTD) gains, the performance of most other top-10 tokens has remained subdued.

BNB is one of the few exceptions, posting a remarkable 85.6% YTD gain, outpacing both Bitcoin and Ethereum. Meanwhile, projects such as Chainlink, Cardano, Sui, and Dogecoin have delivered mixed or negative returns.

Market breadth has also declined, with only 55% of coins trading above their 200-day moving average—down from a high of 78% recorded in mid-September, according to MacroMicro data. This metric, often used to gauge overall market health, suggests waning bullish momentum outside the leading assets.

Loss of Faith in Narrative-Driven Tokens

Experts point out that the underperformance of altcoins reflects investor fatigue with tokens that rely solely on speculative narratives rather than practical value.

“The market is losing patience with high-valuation, low-circulating-supply tokens that lack real use cases,” Ding explained. He cited the fading enthusiasm for sectors like AI, Real-World Assets (RWA), and decentralized exchanges, where new projects have failed to generate sustained demand.

This shift marks a significant departure from previous cycles, where hype-driven assets could easily outperform during bull markets. Analysts say today’s participants—especially institutions—are far more disciplined in evaluating projects before allocating capital.

Selective Strength in Layer-1 and Layer-2 Sectors

Despite the overall slowdown, some pockets of strength remain. The Layer-1 sector, which includes platforms like Solana, Avalanche, BNB, Sui, and Aptos, recorded a 12.5% gain between September 29 and October 5, according to Velo data. Layer-2 networks also performed relatively well, posting an 11.3% rise during the same period.

However, other categories such as DeFi, gaming, and AI-based tokens delivered modest or negative returns, reflecting a market increasingly driven by fundamentals rather than hype.

Institutional Dominance Is Changing Market Behavior

According to Peter Chung, Head of Research at Presto Research, this divergence signals a new stage of market maturity.

“It’s a sign that the industry is evolving,” Chung told Decrypt. “Investors have learned how to evaluate projects on their merits and distinguish winners from losers.”

He added that the growing presence of institutional investors has reshaped market behavior: “With large, disciplined capital flows entering through ETFs and structured funds, the influence of retail traders—who once drove trends based on excitement—has become far smaller.”

While retail-driven rallies still occur, such as the recent 140% surge in ZCash, Chung noted that these are now isolated events rather than market-wide movements.

Altcoins May Recover Later in the Cycle

Looking ahead, analysts remain cautiously optimistic about the future of altcoins. Ding believes that while altcoins are currently lagging, they could regain momentum once Bitcoin and Ethereum enter a consolidation phase.

“The current stagnation doesn’t mean altcoins will be absent this cycle,” he said. “They’re likely to awaken later—but the next rally will be highly selective.”

Ding emphasized that future market gains will favor tokens with genuine utility and real-world applications, rather than those relying on speculative storytelling.

A Maturing Market Focused on Fundamentals

The underperformance of altcoins underscores a broader trend: the crypto market is maturing. Institutional investors are setting new standards for capital allocation, focusing on projects with transparent governance, established ecosystems, and measurable economic value.

As Bitcoin and Ethereum maintain their dominance, altcoins will need more than hype to compete. For now, the era of easy gains driven by narrative appears to be over, replaced by a more selective and sustainable phase of growth in digital assets.