The altcoin sector is undergoing one of its most severe devaluations amid widespread sell-side pressure, with liquidity concentrated on a few trading pairs.

According to a recent Glassnode report, weak adoption and product-market fit have compounded these struggles. This has led to broad-based losses across all altcoin subsectors, and in recent weeks, altcoins have significantly underperformed Bitcoin (BTC).

Principal Component Analysis (PCA) has revealed that most ERC-20 tokens exhibit highly correlated price movements. This indicates a sector-wide sell-off with little differentiation among assets.

Data from Artemis showed that the average market performance since the Feb. 2 crash has been negative 3.4%, below BTC’s 1.5% price decrease in the same period. Additionally, just five of the 21 altcoin sectors tracked by Artemis displayed better average performances than Bitcoin’s.

The report highlighted that the altcoin market capitalization declined by $234 billion over the past two weeks, with only a handful of historical events recording larger absolute drawdowns. 

This substantial loss reinforces the notion of a bear market within the altcoin sector, contrasting Bitcoin’s relative resilience. In percentage terms, the current drawdown ranks among the largest in altcoin history, with only 41 out of 1,662 trading days experiencing a more severe decline.

However, the latest drawdown is still less extreme than May 2021’s Great Miner Migration and the TerraLUNA collapse in 2022.

Liquidity concentration in altcoins

Despite recent sentiment improvements following the US elections and a surge in altcoin exchange-traded fund (ETF) filings, liquidity remains highly concentrated. 

A recent Kaiko report pointed out that daily altcoin liquidity — measured by the 1% market depth of the top 50 tokens — has nearly doubled since September, reaching $960 million.

However, the top 10 altcoins by market cap now account for 64% of total market depth, while mid-cap tokens (ranked 20–30) have seen their share decline. 

Interestingly, smaller-cap altcoins (top 50) have gained ground, surpassing higher market-cap groups (top 40) in liquidity share. This trend suggests that while liquidity rebounds, it consolidates at the top, leaving many altcoins vulnerable. 

With Bitcoin showing strength relative to altcoins, a clear divergence is emerging within the digital asset market, raising questions about the long-term viability of numerous altcoin projects.

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