Small-cap tokens fall to four-year lows—Is a "shitcoin bull run" completely out of hope?
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Small-cap tokens fall to four-year lows—Is a "shitcoin bull run" completely out of hope?
Despite having a correlation of 0.9 with major crypto tokens, it fails to provide any diversification value.
Navigating Web3 tides with focused insightsBy: Gino Matos
Translation: Luffy, Foresight News
Since January 2024, the performance comparison between cryptocurrencies and equities suggests that so-called new "altcoin trades" are essentially just substitutes for stock trading.
In 2024, the S&P 500 delivered a return of approximately 25%, rising another 17.5% in 2025, resulting in a cumulative gain of about 47% over two years. Over the same period, the Nasdaq 100 rose by 25.9% and 18.1% respectively, achieving a combined increase close to 49%.
The CoinDesk 80 Index, which tracks 80 assets outside the top 20 largest cryptocurrencies by market cap, plunged 46.4% in the first quarter of 2025 alone and was down roughly 38% year-to-date by mid-July.
By the end of 2025, the MarketVector Digital Assets 100 Small-Cap Index had fallen to its lowest level since November 2020, wiping out more than $1 trillion in total cryptocurrency market value.
This divergence is no statistical fluke. Broad altcoin portfolios not only posted negative returns but also exhibited volatility comparable to—or even exceeding—that of equities; meanwhile, major U.S. equity indices achieved double-digit gains with manageable drawdowns.
For Bitcoin investors, the central question is whether allocating to small-cap tokens generates risk-adjusted returns. Or does such an allocation merely add exposure to negative Sharpe ratio risks while maintaining correlation levels similar to stocks? (Note: The Sharpe ratio measures risk-adjusted portfolio returns and is calculated as: annualized portfolio return minus annualized risk-free rate divided by annualized portfolio volatility.)
Selecting a Reliable Altcoin Index
For analysis, CryptoSlate tracked three altcoin indices.
The first is the CoinDesk 80 Index, launched in January 2025, which covers 80 assets beyond those in the CoinDesk 20 Index, offering diversified exposure beyond Bitcoin, Ethereum, and other top-tier tokens.
The second is the MarketVector Digital Assets 100 Small-Cap Index, which selects the 50 smallest-market-cap tokens from a basket of 100 assets—essentially serving as a barometer for market "junk assets."
The third is Kaiko’s small-cap index, a research-focused product rather than a tradable benchmark, providing a clear sell-side quantitative perspective on small-cap asset groups.
These three indices capture different dimensions of the market—broad altcoins, high-beta small caps, and quant research views—but all point toward highly consistent conclusions.
In contrast, equity market benchmarks displayed a completely opposite trend.
In 2024, large-cap U.S. indices gained around 25%, followed by another double-digit rise in 2025, with relatively limited pullbacks. During this time, the S&P 500 experienced a maximum drawdown in the mid-to-high single digits, while the Nasdaq 100 maintained a consistently strong upward trajectory.
Both major indices achieved compounded annual gains without significant retracements.
Broad altcoin indices, however, followed a drastically different path. According to CoinDesk Index Company, the CoinDesk 80 Index dropped 46.4% in Q1 alone, compared to a 23.2% decline in the large-cap-focused CoinDesk 20 Index during the same period.
As of mid-July 2025, the CoinDesk 80 Index was down 38% year-to-date, whereas the CoinDesk 5 Index—tracking Bitcoin, Ethereum, and three other major coins—had gained between 12% and 13%.
Andrew Baehr of CoinDesk Index Company described this phenomenon in an interview with ETF.com as "perfectly correlated, yet vastly different in performance."
The correlation between the CoinDesk 5 and CoinDesk 80 indices reached 0.9, meaning their price movements were almost identical, yet the former achieved modest double-digit growth while the latter plunged nearly 40%.
Holding small-cap altcoins provided negligible diversification benefits at an extremely high performance cost.
Performance in the small-cap segment was even worse. According to Bloomberg, by November 2025, the MarketVector Digital Assets 100 Small-Cap Index had dropped to its lowest level since November 2020.
Over the past five years, the small-cap index returned approximately -8%, while the corresponding large-cap index surged about 380%. Institutional capital clearly favored large-cap assets and avoided tail risks.
Judging from 2024 altcoin performance, the Kaiko small-cap index declined over 30% for the year, while mid-cap tokens struggled to keep pace with Bitcoin's gains.
Market winners were highly concentrated among a few top-tier tokens like SOL and XRP. Although total altcoin trading volume briefly rebounded to 2021 highs in 2024, 64% of trading activity was concentrated in the top ten altcoins.
Liquidity in the crypto market did not disappear—it shifted toward higher-value assets.
Sharpe Ratios and Drawdowns
The gap widens further when comparing risk-adjusted returns. Not only were returns deeply negative for the CoinDesk 80 Index and various small-cap altcoin indices, but their volatility matched or exceeded that of equities.
The CoinDesk 80 Index fell 46.4% in one quarter; after another round of declines, the MarketVector small-cap index hit pandemic-era lows in November.
Broad altcoin indices repeatedly suffered catastrophic drawdowns: Kaiko’s small-cap index dropped over 30% in 2024, the CoinDesk 80 plunged 46% in Q1 2025, and small-cap indices again fell to 2020 lows by year-end 2025.
In contrast, the S&P 500 and Nasdaq 100 achieved cumulative returns of 25% and 17% over two years, with maximum drawdowns confined to mid-to-high single digits. While U.S. equity markets saw fluctuations, they remained under control; crypto indices, however, experienced destructive volatility.
Even treating high volatility as a structural feature of altcoins, their risk-adjusted returns from 2024 to 2025 remained far below those of holding large-cap U.S. equity indices.
From 2024 to 2025, broad altcoin indices registered negative Sharpe ratios, while the S&P and Nasdaq indices showed strong Sharpe ratios even before volatility adjustments. After adjusting for volatility, the gap widened further.
Bitcoin Investors and Cryptocurrency Liquidity
The first takeaway from these data is the trend of liquidity centralization and migration toward higher-value assets. Reports from Bloomberg and Whalebook on the MarketVector small-cap index both noted that small-cap altcoins continued to underperform since early 2024, with institutional capital shifting instead into Bitcoin and Ethereum ETFs.
Combined with Kaiko’s observations, although total altcoin trading volume share rebounded to 2021 levels, funds were heavily concentrated in the top ten altcoins. The trend is clear: liquidity has not fully exited the crypto market—it has migrated toward higher-value assets.
The previous altcoin bull run was essentially a basis trade strategy, not a structural outperformance of assets. In December 2024, the CryptoRank Altcoin Bull Index spiked to 88, only to crash to 16 by April 2025, fully erasing its gains.
The 2024 altcoin rally ultimately became a classic case of bubble bursting; by mid-2025, broad altcoin portfolios had given back nearly all their gains, while the S&P and Nasdaq indices continued compounding gains.
For financial advisors and asset allocators considering diversification beyond Bitcoin and Ethereum, CoinDesk’s data provides a clear reference case.
As of mid-July 2025, the large-cap-tracking CoinDesk 5 Index achieved modest double-digit gains year-to-date, while the diversified altcoin index CoinDesk 80 plunged nearly 40%, despite a correlation as high as 0.9.
Investors who allocated to small-cap altcoins gained no meaningful diversification benefit, yet suffered significantly greater return losses and drawdown risks than Bitcoin, Ethereum, or U.S. equities—all while remaining exposed to the same macro drivers.
Currently, capital treats most altcoins as tactical trading instruments rather than strategic holdings. From 2024 to 2025, risk-adjusted returns for spot Bitcoin and Ethereum ETFs were significantly superior, and U.S. equities also performed strongly.
Liquidity in the altcoin market is increasingly concentrating in a few "institutional-grade" coins such as SOL, XRP, and other select tokens with distinct catalysts or clear regulatory outlooks. Asset diversity at the index level is being squeezed by market forces.
In 2025, the S&P 500 and Nasdaq 100 rose about 17%, while the CoinDesk 80 cryptocurrency index fell 40%, and small-cap cryptocurrencies dropped 30%
What This Means for Liquidity in the Next Market Cycle
The market performance from 2024 to 2025 tested whether altcoins could deliver diversification value or outperform during periods of rising macro risk appetite. During this period, U.S. equities posted double-digit gains for two consecutive years with controlled drawdowns.
Bitcoin and Ethereum gained institutional acceptance through spot ETFs and benefited from a more favorable regulatory environment.
In contrast, broad altcoin indices not only delivered negative returns and larger drawdowns but also maintained high correlations with both major crypto assets and equities, failing to compensate investors for the additional risks taken.
Institutional capital follows performance. The MarketVector small-cap index returned -8% over five years, while the corresponding large-cap index surged 380%, reflecting a shift of capital toward assets with clear regulation, liquid derivatives markets, and robust custody infrastructure.
The CoinDesk 80 Index dropped 46% in Q1 and recorded a 38% year-to-date loss by mid-July, indicating that the trend of capital migrating toward high-value assets is not reversing—it is accelerating.
For Bitcoin and Ethereum investors evaluating whether to allocate to small-cap crypto tokens, the data from 2024 to 2025 delivers a clear answer: broad altcoin portfolios underperformed U.S. equities in absolute terms and lagged behind Bitcoin and Ethereum on a risk-adjusted basis; despite a 0.9 correlation with large-cap crypto, they offered no diversification value.
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