Investors are rotating from altcoins to Bitcoin and Ethereum after a rocky Q4 for the crypto market.
Shark Tank Kevin O'Leary sold off all of his crypto assets except BTC and ETH.
Liquidity and regulation are key factors influencing the decision, especially after the October 10 leverage flush.
The two largest cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), could grow bigger in 2026 at the expense of altcoins.
Following a rocky crypto market in Q4'25, institutional investors are beginning to rotate from altcoins toward the top two cryptos. According to the Shark Tank blog, investor Kevin O'Leary sold off all his digital assets except Bitcoin and Ethereum.
The move mirrors that of most retail and institutional players, who have been rotating from alts to majors, according to a report by Jasper De Maere, trader at market-making firm Wintermute. Net over-the-counter (OTC) buying/selling pressure for BTC and ETH has flipped positive heading into 2026.
BTC & ETH Net Over-The-Counter (OTC) Buying/Selling. Source: Wintermute
However, altcoins remained subdued by "heavy supply overhangs and a busy token unlock schedule, keeping pressure on the long tail," De Maere notes.
Going into 2026, liquidity is one of the major factors investors are paying attention to. Aside from being the top two digital assets by market capitalization, Bitcoin and Ethereum have the deepest liquidity in the crypto market. During periods of market stress, crypto assets with low liquidity are susceptible to heavy liquidations.
This is evidenced by the October 10 crypto leverage flush, which triggered liquidations of about $40 billion, when accounting for underreported figures due to the lag in exchange reporting and API limitations, according to Coinglass data. Altcoins bore the brunt of the event, with many witnessing heavy drawdowns not seen since the 2022 bear market.
"Mainstream assets like BTC and ETH saw maximum drawdowns roughly in the 10–15% range, whereas a vast number of altcoins and long-tail assets experienced extreme retracements of 80% or even approached zero," noted Coinglass in its annual derivatives report. "This reflects that the liquidation chain and ADL execution produced the most severe price distortions on assets with the poorest liquidity."
As a result, liquidity flowing toward altcoins has diminished compared to the top two cryptos. Before the October crash, total crypto open interest was 2.8x that of altcoin open interest. However, total OI has increased to about 4x altcoin OI since the crash, signalling an increasing dominance of Bitcoin and Ethereum.
Regulation and corporate interest are also influencing the rotation
Regulation also plays a role. The upcoming CLARITY Act will help classify digital assets that fall within the jurisdiction of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). While the bill is largely seen as a positive for the crypto industry, it's unclear which cryptocurrencies will be classified as commodities and securities.
Shark Tank blog suggests O'Leary and a few professional investors are rotating from altcoins toward Bitcoin and Ethereum until the bill is finalized, since they're the only crypto assets with clear regulatory classification.
Additionally, investors are looking into corporate demand for cryptocurrencies. The digital asset treasury (DAT) narrative, which saw corporate firms accumulating altcoins in Q3, was almost absent in Q4. However, Bitcoin and Ethereum continue to see demand from weekly acquisitions by Strategy and BitMine, helping both cryptos to remain fairly stable compared to altcoins.
On the flip side, Bitwise CIO Matt Hougan is playing the indexing game. Following the launch of the firm's crypto index fund, Hougan stated that he prefers to bet on the entire market rather than going through the hassle of predicting a few winners.
BTC is trading around $87,500, and ETH has edged close to $2,970, down 1.2% and 0.2%, respectively, at the time of publication on Wednesday.
