Wintermute revealed the flow of off-exchange funds in a 28-page report

This article is from: Wintermute

Compiled by｜Odaily Planet Daily Azuma

Editor's Note: On January 13, Wintermute released an analysis report on the cryptocurrency OTC market for 2025. As the industry's leading market maker, Wintermute is undoubtedly very sensitive to the trends in market liquidity. In this 28-page report, the institution reviews the liquidity changes in the cryptocurrency market in 2025 and concludes that ------ the market is transitioning from clear, narrative-driven cyclical fluctuations to a mechanism with stronger structural constraints and execution dominance . Based on this conclusion, Wintermute also outlines three key scenarios necessary for the market to achieve recovery in 2026.

The following is the original content of Wintermute's report, compiled and organized by Odaily Planet Daily (with some content omitted).

Report Summary

2025 marks a fundamental shift in the liquidity mechanism of the cryptocurrency market. Capital is no longer widely dispersed across the market; liquidity has become more concentrated and unevenly distributed, leading to a greater divergence in returns and market activity. As a result, a large volume of trading is confined to a few tokens. The duration of price increases is shorter, and price performance is more dependent on the channels and methods through which liquidity enters the market compared to previous years.

The following report summarizes the main changes in liquidity and trading dynamics observed by Wintermute in 2025:

• Trading activity is concentrated in a few large tokens. BTC, ETH, and a select few altcoins account for most trading activity. This reflects the gradual expansion of ETF and Digital Asset Treasury (DAT) products to a broader range of altcoins, as well as the waning of the meme coin cycle at the beginning of 2025.
• The speed of narrative belief decay has accelerated, and the exhaustion of altcoin markets has doubled. Investors no longer follow narratives with sustained belief but engage in opportunistic trading around themes such as meme coin launch platforms, perpetual contract exchanges, emerging payment systems, and API infrastructures (like x402), with limited follow-up.
• As the influence of professional trading counterparties increases, trading execution becomes more cautious. This is manifested in more prudent periodic trading execution (breaking the previous four-year fixed cycle), broader use of leveraged OTC trading products, and diversified applications of options as core asset allocation tools.
• The way capital enters the crypto market is as important as the overall liquidity environment. Capital increasingly flows into the market through structured channels such as ETFs and DATs, affecting the direction and final aggregation area of liquidity in the market.

This report primarily interprets the aforementioned market developments based on Wintermute's proprietary OTC trading data. As one of the largest OTC trading platforms in the industry, Wintermute provides liquidity services across regions, products, and diverse counterparties, offering a unique and comprehensive perspective on off-chain cryptocurrency OTC trading. Price trends reflect market outcomes, while OTC trading activity reveals how risks are deployed, how participant behavior evolves, and which parts of the market remain active. From this perspective, the market structure and liquidity dynamics of 2025 have undergone significant changes compared to earlier cycles.

Part 1: Spot

Wintermute's OTC trading data shows that trading activity in 2025 has shifted from being purely volume-driven to a more mature and strategic trading environment. Trading volume continues to grow, but trading execution has become more planned, with OTC trading increasingly favored for its ability to handle large transactions, privacy, and controllability.

Market position deployment has also shifted from simple directional trading to more customized execution plans, as well as broader use of derivatives and structured products. This indicates that market participants are becoming more experienced and disciplined.

In Wintermute's spot OTC trading activity, the aforementioned structural changes are primarily reflected in the following three aspects:

• Volume growth: OTC trading volume continues to grow, highlighting the persistent demand for off-chain liquidity and efficient execution of large transactions (while limiting market impact).
• Counterparty growth: The range of participants has further expanded, driven by venture capital funds shifting from pure private placements to liquidity markets; enterprises and institutions executing large transactions through OTC channels; and individual investors seeking alternatives outside centralized exchanges and decentralized exchanges.
• Token landscape: The overall active range of tokens has surpassed BTC and ETH, with funds flowing into a broader range of altcoins through DAT and ETFs. Nevertheless, year-round position data shows that after the major liquidation on October 11, 2025, both institutions and retail investors have returned to major tokens. The duration of altcoin rallies is shorter and more selective, reflecting the waning of the meme coin cycle and an overall contraction in market breadth as liquidity and risk capital become more selective.

Next, Wintermute will provide further detailed analysis on these three aspects.

Volume Growth: Cyclical Patterns Replaced by Short-Term Fluctuations

"The market in 2025 is characterized by volatile trends, with price fluctuations primarily driven by short-term trends rather than longer-term seasonal changes."

Wintermute's OTC trading data shows that trading activity in 2025 exhibits significantly different seasonal patterns compared to previous years. The market's optimism regarding the newly pro-crypto U.S. government quickly faded, and as the narratives around meme coins and AI agents cooled at the end of the quarter, risk sentiment sharply deteriorated. On April 2, 2025, negative news from the top, such as Trump's announcement of increased tariffs, further pressured the market.

As a result, market activity in 2025 concentrated in the first half of the year, performing strongly at the beginning of the year, followed by a comprehensive weakening in spring and early summer. The year-end rebound seen in 2023 and 2024 did not reoccur, breaking what seemed to be an established seasonal pattern ------ a pattern often reinforced by narratives like "October Rally." In reality, this was never a true seasonal pattern but rather year-end rallies driven by specific catalysts, such as the approval of ETFs in 2023 and the new U.S. government taking office in 2024.

Entering the first quarter of 2025, the upward momentum from the fourth quarter of 2024 has not fully recovered. Market volatility has increased, with macro factors dominating market direction, and price trends are more characterized by short-term fluctuations rather than sustained trends.

In short, capital flows have become passive and intermittent, with pulse-like fluctuations around macro headlines, but showing no sustained momentum. In this volatile environment, as market liquidity thins and execution certainty becomes increasingly important, OTC trading remains the preferred execution method.

Counterparties: Institutional Foundations Deepening

"Despite the lackluster price trends in 2025, institutional counterparties have established a foothold."

Wintermute has observed strong growth across most types of counterparties, with the largest increases seen among institutional and retail brokers. In the institutional category, while growth among traditional financial institutions and corporations remains moderate, their participation has significantly deepened ------ activities have become more sustained and increasingly focused on prudent execution strategies.

Although the market performance in 2025 has been lackluster, institutions have clearly established themselves. Compared to last year's more tentative and sporadic participation, 2025 is characterized by deeper integration, larger trading volumes, and more frequent activities. These all provide constructive and positive signals for the industry's long-term future.

Token Landscape: Increasing Diversification in the Leading Market

"Trading volume is increasingly flowing to large tokens outside of BTC and ETH, driven by both DAT and ETFs."

In 2025, the total number of tokens traded remained stable overall. However, based on 30-day rolling data, Wintermute averaged trading 160 different tokens, up from 133 in 2024. This indicates that OTC trading activity has expanded to a broader and more stable range of tokens.

The key difference from 2024 is that the speculative cycle driving token activity in 2025 has weakened ------ the range of trading tokens has remained relatively stable throughout the year, rather than experiencing sharp increases in breadth around specific themes or narratives.

Since 2023, Wintermute's total nominal trading volume has become increasingly diversified, with other segments of trading volume surpassing the total trading volume of BTC and ETH. Although BTC and ETH remain important components of trading flows, their total trading volume share has decreased from 54% in 2023 to 49% in 2025.

Notably, where these funds are flowing is significant ------ while the trading volume share of long-tail tokens continues to decline, blue-chip assets (the top 10 assets by market capitalization, excluding BTC, ETH, wrapped assets, and stablecoins) have increased their share of total nominal trading volume by 8 percentage points over the past two years.

Despite some funds and individuals concentrating investments in large-cap tokens this year, the growth in trading volume is also attributed to ETFs and DATs expanding their investment scope beyond mainstream assets. DATs have been authorized to invest in these assets, and ETFs are also broadening their investment scope, including launching staking ETFs (like SOL) and index funds.

These investment tools continue to favor OTC trading rather than exchange trading, especially when the required liquidity is not available on exchanges.

Analysis of Spot Capital Flows for Various Types of Tokens

Mainstream Coins: Capital Gradually Returning by Year-End

"By the end of 2025, both institutional and retail investors are reallocating back to mainstream coins, indicating that they expect mainstream coins to rebound before altcoins do."

As the narrative around altcoins gradually fades and macro uncertainties resurface in early 2025, capital allocation has returned to BTC and ETH. Wintermute's OTC liquidity data shows that since the second quarter of 2025, institutional investors have consistently maintained an overweight position in mainstream coins; however, retail investors turned to altcoins in the second and third quarters of 2025, hoping for a market rebound in altcoins, but quickly shifted back to mainstream coins after the deleveraging event on October 11.

The trend of capital shifting towards mainstream coins is driven by market fatigue, as the "altcoin season" has failed to truly kick off, leading to a gradual state of disappointment in the market. This trend was initially led by institutions (which have long been net buyers of mainstream coins), but by the end of the year, retail investors also turned into net buyers.

This positioning aligns with the prevailing view in the market: BTC (and ETH) need to lead the market first for risk appetite to return to altcoins. Retail investors now seem to increasingly agree with this stance.

Altcoins: Upward Trends Becoming More Brief

"In 2025, the average duration of altcoin rallies driven by narratives is about 19 days, significantly shorter than the 61 days of the previous year, indicating that the market is showing signs of fatigue after last year's excessive rally."

In 2025, altcoins overall performed significantly poorly, with annual comprehensive returns declining sharply, failing to achieve any meaningful sustained recovery except for brief rebounds. While individual themes may attract attention periodically, these themes have consistently struggled to build momentum or translate into broader market participation. From a capital flow perspective, this is not due to a lack of narratives, but rather that the market is showing clear signs of exhaustion ------ rallies are repeatedly tested but quickly fade due to the inability to consolidate belief.

To understand this dynamic, we look beyond price appearances and focus on sustainability analysis. Here, "sustainability" is defined as the duration that altcoins maintain participation in OTC trading flows above recent normal levels. In practice, sustainability indicators are used to measure whether a rally can attract continued participation or whether market activity dissipates quickly after initial fluctuations. This perspective allows us to distinguish between altcoin rallies that have sustainability and those that only exhibit intermittent, rotational bursts without evolving into widespread trends.

The above chart shows a clear shift in altcoin rallies. Between 2022 and 2024, altcoin rallies typically lasted about 45 to 60 days, with 2024 being a strong year for BTC, driving wealth effects into altcoins and maintaining the heat of narratives like meme coins and AI. In 2025, despite the emergence of new narratives including meme coin launch platforms, Perp DEX, and x402 concepts, the median sustainability dropped sharply to about 20 days.

These narratives may trigger brief market activity but fail to develop into lasting, market-wide rallies. This reflects the volatility of the macro environment, market fatigue after last year's excessive rally, and the insufficient liquidity of altcoins to support narrative breakthroughs in the early stages. This leads to altcoin rallies resembling tactical trades rather than high-confidence trend rallies.

Meme Coins: Active Range Narrowing

"Meme coins peaked in the first quarter of 2025 but failed to recover, as trading became more decentralized and narrowed, unable to regain support."

Meme coins entered 2025 in the most crowded manner, characterized by a dense issuance pace, sustained bullish market sentiment, and price movements that reinforce narratives, but this state abruptly halted. Unlike other sectors with higher beta coefficients, meme coins turned downward earlier and more decisively, and have consistently failed to rebuild upward momentum.

While the absolute number of meme coins in OTC trading remains healthy at any given time, even by the end of 2025, the monthly number of trading tokens still hovers around 20, indicating that trading interest has not disappeared. The change lies in the manner of activity performance. In practice, this means that the number of tokens involved by counterparties each month has significantly decreased, with activities concentrated on specific tokens rather than broadly trading across the entire meme coin sector.

Part 2: Derivatives

Wintermute's OTC trading derivatives data shows strong growth, as increased market volatility and larger transactions have made OTC trading the preferred venue for executing complex, capital-efficient structured products, providing price certainty and operational privacy.

Contracts for Difference: Underlying Asset Range Expanding

"In 2025, the underlying assets for contracts for difference have further expanded, with futures increasingly favored as a capital-efficient way to gain market exposure."

The number of tokens used as underlying assets for contracts for difference in Wintermute's OTC trading desk has doubled year-on-year, increasing from 15 in the fourth quarter of 2024 to 46 in the fourth quarter of 2025. This sustained growth reflects the market's increasing adaptation of contracts for difference as a capital-efficient means to access a broader range of assets (including long-tail tokens).

The growing demand for contracts for difference reflects a trend in the entire market towards obtaining capital-efficient exposure through futures. The open interest in perpetual contracts increased from $120 billion at the beginning of the year to $245 billion in October, before significantly declining after the market risk appetite dropped during the liquidation event on October 11.

Options: Continued Increase in Strategic Complexity

"As systematic strategies and yield generation become the main drivers of trading volume growth, the options market is rapidly maturing."

Building on the previous increase in contracts for difference and futures activity, Wintermute's OTC data shows that counterparties are increasingly turning to options to construct more customized and complex exposures to crypto assets.

This shift has driven a dramatic increase in options market activity: from the fourth quarter of 2024 to the fourth quarter of 2025, both nominal trading volume and the number of trades have achieved approximately 2.5 times year-on-year growth. This is primarily due to more counterparties ------ especially crypto funds and digital asset treasuries ------ adopting options strategies to generate passive income.

The chart below tracks the quarterly activity of OTC options relative to the first quarter of 2025, clearly showing the growth trend throughout 2025. By the fourth quarter, nominal trading volume reached 3.8 times that of the first quarter, and the number of trades reached 2.1 times, highlighting the continued growth in trade size and frequency.

Part of the growth in nominal trading volume is attributed to the rise of systematic options strategies, which involve maintaining exposure over time and rolling positions. This marks a significant shift compared to previous years ------ in the past, options were more often used to express purely directional views.

To understand the evolution of options capital flows, we further observe BTC (which still accounts for a significant share of nominal trading volume in 2025). The chart below shows the quarterly distribution of long and short positions in call/put options.

The composition of BTC options capital flows in 2025 reflects a clear shift: from focusing on bullish call options purchases to a more balanced use of both call and put options, with the activity increasingly leaning towards yield generation and structured, repeatable strategies. Yield strategies have become more prevalent, with investors earning income by selling put options and covered calls, increasing the stable supply of options and lowering volatility. Meanwhile, as BTC has failed to break previous highs, the demand for downside protection remains strong, with long positions in put options continuing to be utilized. Overall, the market is more focused on earning income and managing risk rather than betting on further price increases.

The reduction in naked call option purchases further confirms that options are being used less for directional bullish exposure and more for executing systematic strategies. These dynamics collectively indicate that, compared to previous years, the options market in 2025 is becoming more mature and the user base more professional.

Part 3: Liquidity

Cryptocurrencies have long been a channel for excess risk appetite. Due to weak valuation anchors, embedded leverage, and a high dependence on marginal capital flows, cryptocurrency prices are extremely sensitive to changes in the global financial environment. When liquidity is loose, risk tolerance rises, and capital naturally flows into the crypto space; when the environment tightens, the lack of structural buying quickly becomes apparent. Thus, cryptocurrencies have historically relied, and will continue to fundamentally rely, on global liquidity.

In 2025, the macro environment is a key driver of crypto prices. Despite the current backdrop of easing interest rates, improving liquidity, and strengthening economies ------ factors that typically support the prices of risk assets ------ the performance of the crypto market remains weak. We believe there are two key reasons behind this disconnect: retail attention and new liquidity channels.

Retail Attention: Cryptocurrencies No Longer the "Preferred" Risk Asset

"In 2025, cryptocurrencies have lost their status as the preferred risk asset for retail investors."

Despite increased institutional participation, retail remains the cornerstone of the crypto market. A significant reason for the poor market performance in 2025 is the dispersion of retail attention and the weakening rotation effect of cryptocurrencies as the preferred risk asset.

While there are many influencing factors, the following two are the most prominent: Technological advancements have lowered market entry barriers, making other investment opportunities (especially in areas like AI) more accessible, providing similar risk characteristics, narrative logic, and return potential, thereby dispersing attention away from the crypto space. Meanwhile, we are experiencing a return to normalcy after 2024 ------ a year when retail participation was extremely high, first concentrating on meme coins and then shifting to AI agents by year-end. A return to normal market heat is an inevitable trend.

As a result, retail investors are more inclined towards stock market themes such as AI, robotics, and quantum technology, while BTC, ETH, and most altcoins lag behind in performance among major risk assets. Cryptocurrencies are no longer the default outlet for excess risk-taking.

Liquidity Channels: ETFs and DATs Become New Pathways

"Today, ETFs and DATs, along with stablecoins, have become significant channels driving capital inflows into the crypto market."

While BTC and ETH prices have slightly declined, the most significant relative weakness is seen in the altcoin sector. In addition to weak retail participation, a key factor is the change in the way liquidity and capital enter the market.

Until two years ago, stablecoins and direct investments were the primary channels for capital entering the crypto market. However, ETFs and DATs have structurally changed the pathways for liquidity injection into the ecosystem.

Earlier this year, we categorized crypto liquidity into three core pillars: stablecoins, ETFs, and DATs. Together, they form the main channels for capital inflows into the crypto market.

• Stablecoins have become one of many entry points: They remain crucial for settlement and collateral but now only share the role of capital entry rather than holding a dominant position.
• ETFs direct liquidity towards the top two assets: The constrained capital inflows enhance the depth and resilience of major assets, but have limited spillover effects beyond BTC and ETH.
• DATs introduce stable and non-cyclical demand: Treasury capital allocation further reinforces the concentration on major assets, absorbing liquidity without naturally expanding risk appetite.

Liquidity does not flow solely through ETFs and DATs, but the above shows how important these channels have become. As mentioned earlier, their investment scope is expanding and beginning to allow exposures beyond BTC and ETH, primarily involving other blue-chip tokens. However, this process is gradual, so the benefits to the altcoin market will take time to manifest.

In 2025, cryptocurrencies are no longer driven by broad market cycles. Instead, upward trends are limited to a few assets with concentrated liquidity, while the majority of the market performs poorly. Looking ahead to 2026, market performance will depend on whether liquidity spreads to more tokens or continues to concentrate on a few large tokens.

2026 Market Outlook: Farewell to Purely Cyclical Patterns

"While the market in 2025 failed to achieve the expected upward trends, this may mark the beginning of cryptocurrencies transitioning from speculative assets to mature asset classes."

The market performance in 2025 demonstrates that the traditional four-year cyclical pattern is gradually losing effectiveness. Our observations indicate that market performance is no longer dominated by self-fulfilling four-year narratives but is instead dependent on liquidity flows and investor focus.

Historically, the native wealth of cryptocurrencies has functioned as a single, interchangeable pool of funds, with Bitcoin's gains naturally spilling over into mainstream coins, which in turn transmit to altcoins. Wintermute's OTC trading data shows that this transmission effect has significantly weakened. New capital tools ------ especially ETFs and DATs ------ have evolved into a "closed ecosystem." While they provide sustained demand for a few blue-chip assets, capital does not naturally rotate into the broader market. With retail interest significantly shifting towards stocks and prediction markets, 2025 has become an extremely concentrated year ------ a few mainstream assets absorbed the vast majority of new funds, while the rest of the market struggled to maintain sustained upward trends.

Three Possible Paths for 2026

2025 was a year of significantly narrowing market breadth, as previously mentioned, with the average duration of altcoin rallies shortening from about 60 days last year to about 20 days this year. Only a few selected tokens performed outstandingly, while the broader market continued to decline under the influence of unlocking selling pressure.

To reverse this trend, at least one of the following three conditions must occur:

• ETFs and DATs expand their investment scope: Currently, most new liquidity remains confined to institutional channels like ETFs and DATs. A broader market recovery requires these institutions to expand their investable scope, and preliminary signs are emerging, with more ETF applications for SOL and XRP being submitted.
• Mainstream coins lead the market: Similar to 2024, if Bitcoin (and/or ETH) can rise strongly, it is likely to generate wealth effects that spill over into the broader market. However, how much capital will ultimately flow back into the digital asset space remains to be seen.
• Market attention returns: A less likely scenario is that retail investors significantly shift their attention back from the stock market (including themes like AI and rare earths) to the crypto space, bringing new capital inflows and stablecoin issuance.

The direction of the market in 2026 will depend on whether at least one of the aforementioned catalysts can effectively drive liquidity to spread beyond a few mainstream assets; otherwise, the market's concentration will persist.
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