The introduction of exchange-traded funds (ETFs) for spot Bitcoin (BTC) has had a transformative impact on the market, not just for institutions but also for retail crypto investors. This has resulted in a polarized market that is now undergoing a significant rebalancing.
On one hand, we have retail investors who are now gaining exposure to Bitcoin through their advisors investing in spot BTC ETFs for the first time. It is only a matter of time before Bitcoin becomes a common asset in these investors’ portfolios, just like gold. On the other hand, we have the original crypto enthusiasts who have been part of the market since its early days and strongly believe in the principles of Web3. They invest in Bitcoin because of its decentralization and resistance to censorship. However, now that Bitcoin is being added to portfolios by almost everyone, these early adopters have lost their advantage and are about to revolt.
From the perspective of an early Bitcoin investor, the biggest cryptocurrency has strayed far from its original purpose of replacing the broken payments system. Inadvertently, it has become a part of the system it was designed to disrupt. It’s like discovering a hidden gem of a restaurant, only to see it become popular and taken over by a large corporation. The quality declines, the original purpose is forgotten, and it becomes difficult to get a seat at the table.
Furthermore, as more buyers compete for a limited supply of Bitcoin, its price will rise, but the major beneficiaries will be the big players. Even the management fees earned by managing BTC spot ETFs, which are just 25 basis points, will bring in billions for these asset managers. While retail buyers can still access Bitcoin directly through crypto exchanges, they will have to give up most of their profits to the largest asset managers, which goes against the principles of Web3.
As a result, we are witnessing a division in the crypto market between retail investors willing to pay for Bitcoin and those who are used to accessing it for free. The latter group will simply move elsewhere to find a market that aligns with their beliefs in crypto and offers direct access to blockchain without intermediaries.
This division will be the catalyst for the anticipated altcoin season. Bitcoin maximalists will diversify their portfolios, early crypto enthusiasts will seek higher returns as Bitcoin becomes mainstream, and true believers in the decentralized dream of crypto will drive this transition.
Altcoins have so far lagged behind Bitcoin in terms of performance, but there are signs of a reversal. Ethereum (ETH) has been consistently performing well against Bitcoin, indicating a potential breakout in the coming weeks. When this happens, altcoins will follow suit, as they always do, and it will be the Bitcoin investors searching for alternatives that drive this transition.
As more institutions and traditional investors add Bitcoin to their portfolios, the retail crypto market will become more polarized. Amid this reallocation of assets into altcoins, several altcoins will rise to the ranks of being “too big to fail,” a position that has mostly been reserved for Bitcoin. This cycle will determine which altcoins survive and thrive in the next bull market.
However, not every retail investor will completely abandon Bitcoin. It will likely become the stabilizing core asset in their portfolios, providing a buffer for higher-risk investments. But as Bitcoin grows, it will lose some of its most dedicated early adopters as they search for more decentralized alternatives and greater gains.
Regardless of how this rebalancing unfolds, institutions will profit either way. Even if there is a significant retail exodus from Bitcoin, it will have minimal impact on its price direction due to scarcity, increasing demand, and institutional inflows.
However, this will have a significant impact on the future of decentralized finance (DeFi). With a total value locked (TVL) of just over $100 billion, compared to Bitcoin’s $1.4 trillion market cap, even a small rotation of funds into altcoins could have a major effect on DeFi’s growth. If Bitcoin maximalists embrace altcoins with the same enthusiasm they have for BTC, we can expect explosive growth in the altcoin market. Regardless of which side of the camp one finds themselves on, an exciting summer awaits.
Author Lucas Kiely is the Chief Investment Officer for Yield App and has extensive experience in investment portfolio allocations and diversified investment products. He has previously held senior positions at Diginex Asset Management and Credit Suisse, managing trading and derivatives. He has also worked at UBS, overseeing exotic derivatives.
This article provides general information and should not be considered legal or investment advice. The views expressed here are solely those of the author and do not necessarily represent the views of Cointelegraph.