From Cycles To Concentration: How Liquidity Decides Crypto Volatility
In Brief
In 2025, Wintermute reported that crypto volatility increasingly originated in highly liquid assets like Bitcoin and Ether, with capital concentrated in ETFs, derivatives, and major tokens, leaving most altcoins structurally illiquid and limiting the duration and scale of their rallies.
Crypto volatility progressively begins at the concentration of liquidity, rather than narrative trends. In their most recent OTC study, we see patterns over the past several years have placed price discovery on the side of Bitcoin, Ether, and a thin layer of large caps. This leaves much of the altcoin market structurally illiquid when risk appetite comes back in 2025.
Capital made its entrance into crypto in 2025, but got concentrated in several so-called liquidity funnels. It identified significant channels such as ETFs and “DATs, which guided the incremental demand towards majors, and little spillover on the remainder of the market.
Source | X
The concentration was important since it altered the point of volatility ignition. In the swiftest positioning markets, the shock may be passed on, yet it does not always finance a wide rotation of the altcoins, Wintermute contended.
The report by Wintermute states that in the market, the altcoin season did not come as it used to. Instead, liquidity remained concentrated in BTC, ETH, and some large caps, shortening the time and follow-through of smaller token rallies.
The company estimated that the average altcoin rallies took about 19- 20 days in 2025, compared to about 61 days in 2024. Practically, that was increased speed of pumps, increased reversals, and shortened time of trend chasers to re-establish.
Wintermute also tied the narrowed windows to condensed stories. Memecoin launchpads, perp DEX themes, and AI-token bursts reached their highest velocity earlier and their lowest sooner in their framing as liquidity remained top-heavy.
Options Grew, and Strategies Shifted Toward “Systems”
Wintermute reported that maturation in the market was manifested through derivatives. In the threaded tweet, it stated that the options activity increased more than twice annually, growing approximately 2.5x between Q4 2024 and Q4 2025, and that the usage went beyond basic directional bets. (This measure is an analysis of the report summary by Wintermute that you gave me.)
The trend on that narrative is also backed by the information in the public market. Regulated markets have reported high levels of derivatives involvement in 2025. CME reported that the combined notional volume on crypto futures and options in Q3 2025 was over $900 billion, and record open interest milestones in the quarter.
During this period, market discussion about 2025 had repeatedly talked about a shift in crypto option trading on larger exchanges, particularly Bitcoin and Ether options, in line with the wider usage of hedging and yield-form designs.
ETFs Reinforced the “Major-first” Liquidity Map
The main argument of Wintermute is that new demand channels are becoming more and more like routing systems. ETFs, requirements, and custody restrictions have the propensity to focus the flows on already clearing assets, liquidity, and regulatory burdens.
That background also appeared in more general reporting of fund flows during 2025. According to CoinShares data mentioned by Reuters, the inflow of crypto ETFs in the world was the highest in its history in early October 2025, with Bitcoin and Ether occupying the biggest portions of the allocations during this time.
In the framing of Wintermute, these goods were liquidity funnels, together with stablecoins, which channeled the location of capital, constrained the spillover over majors, even in a case where there was an improvement in risk sentiment.
Retail trading and thematic trading in the United States Agricultural markets were expected to remain vigorous in 2025, particularly around AI-related names and headline-related volatility. Indicatively, the U.S. equity options volumes were at all-time highs, and these numbers were expected to hit another record year, and the AI developments were mentioned multiple times as an impetus to the trading interest.
The signals of broker-flow indicated a rotation that retail made back to crypto majors after October 10, according to Wintermute, but this rotation was primarily into BTC and ETH, as opposed to an altcoin basket.
Why these changes “where volatility starts”
Traders in earlier cycles tended to look for capital to move out of BTC to ETH and then onto alts as a self-fulfilling trend. Wintermute suggests that this framing was bound to fail in 2025.
Rather, volatility will start at the level of the greatest liquidity and the leverage most readily represented. When the majors are generally where ETFs, big OTC clips, and options hedges are concentrated, the initial impulse movement is likely to begin there and proceed out in all directions through correlations, liquidation, and reduced risks.
The outcome is the liquidity map in which majors prevail in both the entry and the exit routes. Under such an arrangement, alts can act sharply, but in fewer bursts and with less constant sponsorship.
Three scenarios that could change 2026. These are if the ETF or DAT is made mandatory more broadly, there is an outward-spreading wealth effect caused by BTC/ETH, or the retail mindshare has changed to crypto.
In the meantime, its conclusion of 2025 is in-your-face: the results were explained by concentration, rather than cycles. Assuming it is still true that traders might have to follow the liquidity paths more than narrative calendars, since the origin point of volatility is where capital can flow the most rapidly.
Disclaimer
In line with the Trust Project guidelines, please note that the information provided on this page is not intended to be and should not be interpreted as legal, tax, investment, financial, or any other form of advice. It is important to only invest what you can afford to lose and to seek independent financial advice if you have any doubts. For further information, we suggest referring to the terms and conditions as well as the help and support pages provided by the issuer or advertiser. MetaversePost is committed to accurate, unbiased reporting, but market conditions are subject to change without notice.
About The Author
Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
More articles
Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
