What to expect from altcoins as ETH ETF approval draws closer

As the crypto market continues consolidating on Wednesday, altcoins show mixed signals ahead of the spot ETH ETF launch. Many have predicted that the alt season may not occur in this cycle following the market lull. However, two key metrics suggest otherwise.

Investors fade altcoins after recent underperformance

Lookonchain data highlights that a notable whale/institution sold most of its altcoin holdings on Wednesday. The whale spent $75 million to purchase ETH and several other Ethereum-related tokens after the SEC approved ETH ETF issuers' 19b-4 filings on May 23.

However, the crypto market has been on a downtrend since the week of spot ETH ETF approval. The SEC's delay in approving issuers' S-1 registration statements sparked concerns among investors who have become overly cautious about potential topside bets.

The whale sold 3.13M LDO ($5.77M), 49,771 AAVE ($4.54M), 269,177 UNI ($2.41M) and 250,969 FXS ($708K) at a loss. However, the whale made a profit of over $7.29M on ETH, bringing its net profit to $2.87M.

Lookonchain highlights that the whale still holds about 3.33M LDO ($5.83M) and 31,191 AAVE ($2.8M) despite realizing losses of $4.33M from their price decline.

The whale's move echoes sentiments from some traders who predicted that most altcoins have already reached their highs of this cycle during the crypto market rally from March into early April.

Many traders have been expecting an "alt season" similar to that of the 2020/2021 bull cycle when several altcoins (mostly Ethereum-based) rallied to new highs after Bitcoin stalled. However, the current cycle seems to be following a new trajectory due to several changes in the market, with the Bitcoin ETF launch being the most noticeable.

"In the last cycle, the game was simpler. Most of the activity happened on $ETH and Ethereum DeFi coins [...] But now there are probably 300 decent projects. There is not enough liquidity for all of them to pump," noted crypto trader @Route2Fi in an X post on Wednesday.

"Remember there are a lot more tokens with "utility" on the market today than in 2021. Every week now 3-5 "quality" coins are added to the market. Total market cap goes up, and everyone seems happy. But ask yourself who is going to buy all these tokens. Unless institutions or retail are coming in masses, it will just be a forever PvP fight," he added.

Could alt-season narrative play out regardless?

However, the "alt season" narrative may still be in play due to two key reasons.

Firstly, while FUD has saturated the market recently, Santiment data noted that most altcoins are in a buy zone with their Market Value to Realized Value (MVRV) ratios at lower levels.

The 30-day MVRV chart below features a few altcoins — mostly Ethereum-based — with their ratio showing addresses that purchased them in the last 30 days are at average losses between 5-18%. This is often interpreted as a sign of a potential bullish reversal.

Altcoins 30-day MVRV

Secondly, investors expect spot ETH ETFs to launch before the end of July. The inflows in these ETFs could trigger a rally in Ethereum, which is highly correlated with the several altcoins in its ecosystem. The brief surge across several altcoins when the SEC approved issuers' 19b-4 filings is a testament to this.

On the flip side, spot ETH ETFs could underperform analysts' expectations, potentially causing a headwind for several Ethereum-related altcoins.