The market is currently experiencing a phase of textbook rotation.
On the technical side, Bitcoin dominance (BTC.D) recorded four consecutive days of downward pressure after breaking 61.2% in early May. At the same time, the Altcoin Season Index jumped more than 10 points in less than 24 hours, reinforcing a classic BTC-to-altcoin rotation pattern.
Historically, however, altcoin rallies rarely maintain momentum unless Ethereum (ETH), the largest altcoin, begins to strengthen against Bitcoin (BTC), allowing more capital to flow into the broader altcoin market.
As shown in the chart below, the ETH/BTC ratio has rebounded by approximately 0.7% after four straight weeks of declines. This could be an early sign that the rotation could extend beyond Bitcoin.
In short, several signals could align for the market to start speculating on an altcoin rally.
That said, dynamics remains the key variable. During the previous cycle from February to April, the ETH/BTC ratio surged nearly 15%, sending the Altcoin Seasonal Index up over 40% before surging above nearly 55. This corresponds with BTC.D encountering resistance around the 60% level, creating a similar rotational narrative.
And yet, despite the structure improving, the pattern never evolved into a full-fledged altcoin cycle. The Altcoin Season Index failed to surpass the threshold of 75 typically required to confirm broad market-wide altcoin expansion.
This raises the key question: is the market simply entering another short-lived rotation phase, or is this pattern fundamentally different?
Declining USDT dominance as key liquidity driver behind altcoin rotation
The current altcoin rotation is not happening in isolation.
Instead, it is moving in tandem with USDT’s dominance, down 2.7% for the week, falling below the critical 7% support level in early February. Declining USDT dominance typically signals an outflow of liquidity from risk assets, which also corresponds with BTC.D also reaching resistance. Together, these observations imply that investors have expressed hesitation to invest further in Bitcoin and may gradually rotate their capital elsewhere.
Notably, on-chain data further appears to support this trend. At the time of writing, USDT flows had just recorded their largest exchange outflow in roughly three months, with -$1.29 billion in net USDT flowing out of exchanges on May 8.
This is usually a bearish signal. However, combined with an increase in the ETH/BTC ratio, this means that capital could increasingly turn to altcoins rather than completely withdrawing from risky assets.
Naturally, this makes the decline of USDT dominance a key distinguishing factor in the current cycle.
If this trend continues, the rebound in the seasonal Altcoin Index, after returning to mid-July 2025 levels, could reflect a potential exhaustion of altcoin selling pressure. Combined with the rise of ETH/BTC, the broader altcoin market could begin to follow suit, making this a key setup to watch for divergences from the February-April altcoin rally structure.
Final summary
- A rise in ETH/BTC and the Altcoin Season Index hints at an early turnover of capital.
- The decline of USDT dominance with significant outflows also appears to support the altcoin’s strength.
