Liquidity is concentrated at the top, cycle narratives fail: Wintermute report reveals structural upheaval in the crypto market by 2025

Global leading crypto algorithm market maker Wintermute recently released the “2025 Digital Asset OTC Market Report,” revealing a fundamental shift in market structure: liquidity is concentrating at an unprecedented pace into Bitcoin, Ethereum, and a few large-cap tokens, while traditional altcoin rotation and narrative-driven cycles are losing effectiveness.

The report points out that the median duration of altcoin narrative rebounds in 2025 has sharply decreased from about 61 days in the previous year to 19 days, while OTC options trading volume has doubled, marking a shift in market participation from speculation to more systematic risk management. The core driver of this change is that institutional capital entering via ETFs and digital asset treasury companies is “trapped” in top assets, failing to effectively diffuse into the broader altcoin space. Looking ahead to 2026, the market’s full recovery will depend on three key variables: expansion of institutional investment scope, strong performance of top assets, or a robust return of retail funds.

Liquidity Concentration: How Institutional Capital Reshapes Market Topology

Wintermute’s report explicitly states that the most notable feature of the 2025 crypto market is liquidity “concentration” rather than “diffusion.” This is starkly different from past cycles, where Bitcoin and Ethereum’s rises would regularly spill over and rotate into altcoins—a “liquidity recovery” pattern. Today, the path dependence of capital flows has become more critical than ever—how funds enter the market almost determines which assets can gain deep liquidity.

This shift stems from an unprecedented strengthening of the dominant role of institutional participants. Continuous inflows into spot Bitcoin ETFs, along with increasing numbers of listed companies and digital asset treasury firms holding Bitcoin and Ethereum on their balance sheets, form a large and stable buyer base. However, these capital sources, often constrained by strict regulations or internal risk policies, typically limit their investments to the largest, most liquid, and clearly compliant assets. As the report emphasizes, “more capital is flowing through structured channels like ETFs and digital asset treasury companies,” shaping a pattern of liquidity aggregation: depth accumulates in top assets but struggles to penetrate the long tail of tokens.

(Source: Wintermute)

This structural change is vividly reflected in trading data. Although Bitcoin and Ethereum together accounted for 54% of Wintermute OTC nominal trading volume in 2023, this share has slightly decreased to 49% in 2025. This does not signal a revival of altcoins. The reduction is mainly absorbed by other large-cap blue-chip tokens (top ten market cap assets, wrapped assets, and stablecoins), while participation in many small- and mid-cap altcoins has actually shrunk. Market breadth has significantly narrowed, with only a tiny circle of assets performing well.

Key Data Overview from Wintermute 2025 OTC Report

Top Asset Concentration: BTC and ETH OTC trading volume combined account for 49%, with remaining liquidity gathering in other major assets.

Altcoin Narrative Lifespan: Median rebound duration plummeted from about 61 days in 2024 to 19 days in 2025.

Options Market Explosion: OTC options nominal trading volume more than doubled compared to last year, with year-end volume roughly 4 times that of the beginning of the year.

Trading Strategy Shift: Systematic yield and risk management strategies have replaced one-off directional bets, dominating the options market.

Capital Path Dependence: ETFs and digital asset treasury companies are central channels influencing liquidity distribution.

This “top assets island” effect results in a seemingly paradoxical phenomenon: despite continuous institutional inflows into crypto, overall market activity and many projects’ prices have not been broadly uplifted. Liquidity pools at the top have become reservoirs, yet there are no effective channels to flow into the broader ecosystem. For altcoin projects relying on market-wide risk appetite and capital rotation, this presents a severe challenge.

Altcoin Cycles Fail: From “Raging Bull” to “Fleeting Flash” Narrative Decay

If liquidity concentration depicts the static market structure, the sharply shortened altcoin rallies dynamically reflect evolving market sentiment. A key data point in the Wintermute report is striking: in 2025, the median duration of altcoin narrative rebounds is only 19 days, down from about 61 days in 2024—more than two-thirds shorter. This means a hot concept is discovered, hyped, and forgotten in a compressed cycle.

The report notes that the meme coin cycle had already “collapsed” in early 2025, setting the tone for a generally weak altcoin market throughout the year. Although new narratives did intermittently emerge—such as meme coin launches, perpetual DEXs, and emerging themes like payments and API primitives—the momentum behind these hotspots was limited. Market reactions became rapid “speculative pulses,” with funds briefly entering and quickly exiting, lacking the sustained buying power needed to form trending moves.

This shift results from multiple factors. First, the absence of institutional capital means the altcoin market mainly depends on existing retail funds and sentiment. After the deep bear market and industry crashes of 2022-2023, retail risk appetite has become highly cautious and sensitive. Second, ongoing token unlocks have created real selling pressure, increasing circulating supply while demand has not kept pace, forming a “supply glut.” Finally, macro factors—such as more attractive returns in AI, robotics, and quantum computing stocks—divert speculative capital that might otherwise flow into crypto.

Trading behavior has also changed. Wintermute observes that large counterparties exhibit “lower directional conviction and more tactical positioning around news headlines.” Even professional participants are adopting faster, short-term strategies rather than long-term fundamental holdings. Execution has become “more cautious and repetitive,” indicating a shift from seasonal trading cycles (like the so-called “Uptober”) to more refined, systematic trading frameworks. The once mythic wealth-creating altcoin market is now evolving into a high-skill, fast-paced arena, with volatility remaining but sustainable profit windows greatly shortened.

Derivatives Market Matures: From Directional Gambling to Systematic Risk Management

While the spot market undergoes structural pain, the crypto derivatives market—especially OTC options—shows a different trajectory of maturity and growth. Wintermute’s report highlights this evolution as another decisive trend in 2025, indicating that market participants are becoming more sophisticated.

Data shows that Wintermute’s OTC options activity increased significantly in 2025, with nominal trading volume more than doubling year-over-year, and nearly quadrupling from the start to the end of the year. More importantly, the nature of trading has shifted: flow is now primarily driven by systematic yield enhancement and risk management strategies rather than single directional bets. This signals that professional players are increasingly using options as core portfolio tools—to build precise risk exposures, hedge uncertainties, or generate additional income through covered calls and similar strategies.

Meanwhile, capital-efficient tools like CFDs are also gaining popularity. CFDs allow traders to gain price exposure without directly holding the underlying assets, lowering capital barriers and operational complexity—especially appealing to institutional players seeking diversification with capital efficiency. The widespread adoption of OTC derivatives complements the trend of order book concentration in top assets, together forming a “structured,” OTC-dominated trading ecosystem.

This shift from “gambling” to “risk management” is a necessary step in integrating crypto markets into the broader financial system. It attracts a more diverse set of participants—including traditional financial institutions that are less interested in pure speculation but require risk-adjusted returns and portfolio construction. The deepening derivatives market provides more price discovery and risk management tools, enhancing ecosystem resilience. However, it also widens the “arms race” gap between professional institutions and retail traders, with market dominance increasingly shifting toward well-equipped, sophisticated players.

Outlook for 2026: The “Impossible Triangle” of Market Recovery and Potential Catalysts

Looking at the end of 2025, Wintermute’s tone is cautious. It suggests that 2025 may mark the end of the previous clear, narrative-driven “pure” cycles, and the market is entering a new regime characterized by structural constraints and execution-driven dynamics. In this new regime, top assets like Bitcoin and Ethereum behave more like mature assets, while the broader altcoin universe resembles a highly volatile, capital-driven “secondary market.”

What conditions are needed for a full market revival? Wintermute proposes a near-“impossible triangle” of three potential catalysts, believing that at least one must occur to reverse the current high liquidity concentration.

First, the most direct path is broadening institutional investment scope. Currently, ETFs and digital asset treasury firms, as primary entry points, need to “expand their authorized assets,” including more diversified crypto assets—potentially other large-cap Layer 1 tokens or sector-specific tokens—into their portfolios. This requires clearer regulation, better compliance tools, and risk model adjustments within institutions.

Second, wealth spillover from top assets—Bitcoin and/or Ethereum—must trigger significant gains, creating substantial paper wealth that incentivizes profit-taking funds to actively rotate into altcoins seeking higher returns. This is essentially a call for a “recovery” of the traditional liquidity cycle, but its effectiveness is diminished in the new institutional-dominated structure.

Finally, the most uncertain path: retail investor attention returns. Currently, retail focus is captured by AI, US equities, and commodities with better performance. To attract them back, macroeconomic conditions—such as a more aggressive Fed easing cycle boosting risk appetite—or breakthrough applications with viral potential are needed. The report considers this scenario less likely.

Who is Wintermute? An Ecosystem Perspective of a Top Market Maker and Industry Influence

Understanding Wintermute itself, beyond the report, helps gauge the authority and weight of its insights. Wintermute is a leading global algorithmic trading firm, OTC desk, and liquidity provider in digital assets. It averages over $15 billion daily in trading volume, providing liquidity across more than 60 centralized and decentralized exchanges, and is a key partner for many token projects seeking deep, scalable liquidity.

Its scope extends beyond crypto, actively trading on traditional exchanges like CME and Eurex, serving some of the largest global financial institutions. This cross-over position makes Wintermute’s OTC data an excellent window into “smart money” and institutional capital flows. Its reports are based not on public quotes but on real, large-scale institutional counterparty flow, offering rare “insider” insights into market microstructure.

Additionally, Wintermute is not just a trading firm—building is part of its core DNA. It has incubated multiple crypto protocols, some of which have become independent businesses. This combination of trading, market-making, incubation, and ecosystem building gives Wintermute a macro strategic perspective with micro operational depth. Its annual OTC market report is a must-read for industry insiders, analysts, and seasoned investors, often signaling future market trends.

Deep Dive into “Liquidity Recovery” Failure: The End of an Old Cycle Order

A recurring theme in Wintermute’s report is the failure of the traditional “liquidity recovery” model. Understanding this concept is key to grasping current market difficulties. “Liquidity recovery” describes a classic cycle: a bull market initiated by Bitcoin’s rise attracts external capital; profits are taken from Bitcoin to buy altcoins, pushing them higher; altcoins’ surge attracts new retail funds, which then rotate back into Bitcoin and Ethereum, creating a positive feedback loop of capital flowing among assets.

In 2025, this model was thoroughly broken. New capital mainly enters via direct purchases of spot Bitcoin ETFs, anchoring funds in Bitcoin itself. Fund managers (e.g., traditional funds, corporate treasurers) aim to allocate specifically to Bitcoin, without the intention to rotate into altcoins after Bitcoin’s rise. As a result, capital flows in a one-way pipeline—primarily into Bitcoin—without the typical cyclical rotation. This deepens liquidity pools at the top while leaving the long tail of altcoins underfunded.

This structural change creates a layered market: a top layer supported by institutional capital, with lower volatility and higher macro correlation, and a bottom layer driven by retail and speculative activity, with high volatility but lacking sustained inflows. The two layers’ correlation weakens. This does not mean altcoins cannot rise, but their growth must shift from a beta-driven “Bitcoin up, I up” logic to alpha-driven factors like technological breakthroughs, adoption, or unique business models. Recognizing this paradigm shift and adjusting investment strategies accordingly is essential for survival and growth in the new regime.