Smaller tokens are making a comeback against the S&P 500, but the setup could unravel if leverage gets out of hand.
The altcoin market may be approaching a turning point after several major gauges broke out of year-long downtrends, according to analyst Matthew Hyland.
His charts suggest smaller cryptocurrencies are gaining ground against Bitcoin and traditional risk assets, although rising leverage also increases the odds of a painful correction.
Altcoin Gauges Break Long Downtrends
In a post published on September 7, Hyland said ETH, Total 2, Total 3, and OTHERS had all confirmed the end of their year-plus declines by forming higher highs. Let’s break that down a bit.
Total 2 tracks altcoins excluding Bitcoin, while Total 3 removes both BTC and Ethereum. OTHERS excludes the top 10 cryptocurrencies and therefore focuses more heavily on smaller tokens.
Hyland questioned whether the moves were simply a “bear market rally,” then followed up with a more bullish assessment.
In another post, the market watcher wrote, “The largest #Altcoin Bull Run of all time is loading,” and argued it could be “much larger than 2020-2021.” The accompanying OTHERS.D/SPX chart provided the basis for that view. It compares the dominance of cryptocurrencies outside the top 10 to that of the S&P 500.
The ratio has been falling for years after reaching a major peak during the 2017-2018 ICO period, and the chart places the current reading near the lower end of that long decline. A lower oscillator on the chart has also moved into an oversold area around 20-30, and the setup is being compared with the overbought reading near 80 seen in 2017.
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But that does not prove that a new altcoin cycle has started. It does show why Hyland believes the market may be approaching a period of relative strength for smaller tokens.
There are already signs of increased trading activity, with data from Coinalyze showing altcoin perpetual futures open interest had overtaken Bitcoin’s for the first time since December 2024.
Leverage Adds Another Side to the Trade
The shift comes as altcoins outside the top 10 have pushed their combined market capitalization to $213 billion, up nearly 12% since the start of September.
Zcash has been one of the dramatic examples. Yesterday, as CryptoPotato reported, it surpassed $1,200, up 370% from its early-June low. Its market cap also moved above $20 billion, putting it ahead of Hyperliquid (HYPE) and Dogecoin (DOGE), both of which were still at the time of writing, having gained over 11% in 24 hours.
DOGE itself and BNB also posted strong moves in that period, with the former climbing 12% from its Friday low to $0.094, while BNB went close to $780, its highest level since early February.
But there’s a warning. ZEC perpetual futures open interest reached $2.7 billion per CoinGlass, while its move above $1,200 triggered $24 million in liquidations in the last 24 hours, more than $17 million of that being shorts, and historically, similar shifts in derivatives positioning have come right before corrections in mid-cap tokens.
That leaves two competing signals: the breadth of the altcoin move is improving, and several long-term charts have broken higher, but at the same time, leverage is building quickly. However, as things stand, Hyland sees the first as evidence that the market could be entering a much larger altcoin phase.