Wintermute uses a 28-page report to reveal the flow of OTC funds

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This article is from: Wintermute

Compiled by｜Odaily Planet Daily (@OdailyChina); Translator｜Azuma (@azuma_eth)

Editor’s note: On January 13, 2025, Wintermute released an analysis report on the OTC cryptocurrency market in 2025. As the industry’s leading market maker, Wintermute is undoubtedly highly sensitive to market liquidity trends. In this 28-page report, the firm reviews liquidity changes in the cryptocurrency market in 2025 and concludes — the market is shifting from clear, narrative-driven cyclical fluctuations to a mechanism with stronger structural constraints and execution dominance. Based on this conclusion, Wintermute also pre-sets three key scenarios for the market to achieve a recovery in 2026.

Below is the original report content from Wintermute, translated and organized by Odaily Planet Daily (some content has been omitted).

Report Summary

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

The 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 some selected altcoins account for most trading activity. This reflects the gradual expansion of ETF and Digital Asset Fund (DAT) products to a broader range of altcoins, and the retreat of Meme coin cycles at the beginning of 2025.

The speed of narrative belief fading accelerates, and altcoin rallies double in speed. Investors are no longer following narratives with sustained conviction but are opportunistically trading themes such as Meme coin launch platforms, perpetual exchanges, emerging payment and API infrastructure (like x402), with limited follow-up.

With the influence of professional counterparties strengthening, trade execution becomes more cautious. This manifests as more prudent cyclical trading (breaking the previous four-year fixed cycle), wider use of leveraged OTC 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. Increasingly, capital flows through structured channels like ETF and DAT, affecting liquidity distribution and final accumulation zones in the market.

This report mainly interprets these market developments based on Wintermute’s proprietary OTC trading data. As one of the industry’s largest OTC platforms, Wintermute provides liquidity services across regions, products, and multiple counterparties, offering a unique and comprehensive off-chain crypto OTC perspective. Price trends reflect market outcomes, while OTC 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 in 2025 have significantly shifted compared to early cycles.

Part 1: Spot

Wintermute’s OTC data shows that in 2025, trading activity has shifted from purely volume-driven to a more mature, strategic trading environment. Trading volume continues to grow, but execution is more planned, with OTC increasingly favored for its bulk trading capacity, privacy, and controllability.

Market positioning has also shifted from simple directional trades to more customized execution schemes, with broader use of derivatives and structured products. This indicates that market participants are becoming more experienced and disciplined.

In Wintermute’s spot OTC activities, these structural shifts are mainly reflected in three aspects:

Trading volume growth: OTC volume continues to increase, highlighting persistent demand for off-chain liquidity and efficient execution of bulk trades (while limiting market impact).

Counterparty growth: The participant base further expands, driven by factors such as venture capital funds shifting from pure private placements to liquidity markets; enterprises and institutions executing large trades OTC; and individual investors seeking alternatives outside centralized and decentralized exchanges.

Token landscape: The overall active token universe has expanded beyond BTC and ETH, with funds flowing into a wider range of altcoins via DAT and ETF. However, after the major liquidation on October 11, 2025, both institutional and retail investors have refocused on main tokens. Altcoin rallies are shorter and more selective, reflecting the retreat of Meme coin cycles and a market-wide contraction in breadth as liquidity and risk capital become more selective.

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

Trading volume growth: cyclical patterns replaced by short-term volatility

“The characteristic of the 2025 market is oscillation, with price fluctuations mainly driven by short-term trends rather than longer-term seasonal patterns.”

Wintermute’s OTC data shows that in 2025, trading activity exhibits a distinct seasonal pattern, markedly different from previous years. Optimism around the new pro-cryptocurrency US government quickly dissipated, and as Meme coin and AI Agent narratives cooled at quarter-end, risk sentiment sharply worsened by the end of Q1. On April 2, 2025, Trump’s announcement of tariffs and other negative news further pressured the market.

Therefore, market activity in 2025 was concentrated in the first half of the year, with strong early performance followed by a full decline in spring and early summer. The end-of-year rebound patterns seen in 2023 and 2024 did not recur, breaking the seemingly established seasonal pattern — often reinforced by narratives like “October rally.” In reality, this was never a true seasonal pattern but driven by specific catalysts such as ETF approvals in 2023 and the new US government in 2024.

After entering Q1 2025, the bullish momentum from Q4 2024 never fully recovered. Market volatility increased, and as macro factors dominated the trend, price movements became more short-term fluctuations rather than sustained trends.

In short, capital flow became passive and intermittent, with pulse-like volatility around macro headlines, but no persistent momentum. In this oscillating environment, as market liquidity thins and execution certainty becomes more critical, OTC remains the preferred execution method.

Counterparty: Institutional roots deepen

“Despite the flat price trend in 2025, institutional counterparties are now firmly established.”

Wintermute observed strong growth across most counterparty types, with the largest increases in institutional and retail brokerages. Among institutions, traditional financial firms and corporates grew modestly but with significantly deeper engagement — activity became more sustained and increasingly focused on cautious execution strategies.

Although 2025’s market performance was subdued, institutions are clearly rooted here. Compared to more tentative and scattered participation last year, 2025 features deeper integration, larger trade volumes, and more frequent activity — all positive signals for the industry’s long-term future.

Token landscape: Diversification of top-tier markets

“Trading volume increasingly flows into large tokens beyond BTC and ETH, driven jointly by DAT and ETF.”

In 2025, the total number of tokens traded remained stable overall. However, based on 30-day rolling data, Wintermute traded an average of 160 different tokens, up from 133 in 2024. This indicates OTC activity has expanded into a broader and more stable token universe.

Compared to 2024, a key difference is that the speculative cycles driving token activity have weakened — token diversity remained relatively stable throughout the year, rather than surging around specific themes or narratives.

Since 2023, Wintermute’s total nominal trading volume has become increasingly diversified, with other segments surpassing the combined volume of BTC and ETH. While BTC and ETH still dominate trading flows, their share has declined from 54% in 2023 to 49% in 2025.

Notably, where is the flow going — although the share of long-tail tokens continues to decline, blue-chip assets (top 10 by market cap, excluding BTC, ETH, wrapped assets, and stablecoins) increased their share of total nominal volume by 8 percentage points over the past two years.

While some funds and individuals concentrated on large-cap tokens this year, volume growth also benefited from ETF and DAT expanding their investment scope beyond mainstream assets. DATs are authorized to invest in these assets, and ETFs are broadening their offerings, including staking ETFs (like SOL) and index funds.

These investment tools continue to favor OTC over exchange trading, especially when the required liquidity cannot be provided on exchanges.

Analysis of spot capital flows across token types

Mainstream coins: gradual reflow at year-end

“By the end of 2025, both institutional and retail investors are reallocating back into mainstream coins, indicating they expect a rebound before altcoins recover.”

As altcoin narratives fade and macro uncertainties re-emerge in early 2025, capital reallocates back into BTC and ETH. Wintermute’s OTC liquidity data shows that since Q2 2025, institutional investors have maintained an overweight position in mainstream coins; retail investors shifted towards altcoins in Q2 and Q3, hoping for a market rebound, but after the deleveraging event on October 11, they quickly reverted to main tokens.

The trend of capital moving into main tokens is driven by market fatigue, as “altcoin season” has not truly started, and the market is gradually entering disappointment. This trend was initially led by institutions (which have long been net buyers of main tokens), but by year-end, retail investors also became net buyers.

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

Altcoins: shorter rally durations

“In 2025, the average altcoin rally driven by narratives lasted about 19 days, sharply shorter than 61 days in the previous year, indicating market fatigue after last year’s overextension.”

Altcoins performed poorly overall in 2025, with significant declines in annual total returns, and no meaningful sustained recovery apart from brief rebounds. While some themes attracted temporary attention, these themes struggled to gather momentum or translate into broader market participation. From a capital flow perspective, this is not due to a lack of narratives but rather clear signs of market exhaustion — rallies were repeatedly tested but quickly faded due to lack of conviction.

To understand this dynamic, we go beyond price appearances and focus on sustainability analysis. Here, “sustainability” is defined as the duration that altcoins maintain participation in OTC trading above recent normal levels. In practice, sustainability metrics measure whether a rally can attract ongoing follow-up or whether market activity dissipates quickly after initial volatility. This perspective helps distinguish between sustained altcoin rallies and short-lived, rotational bursts that do not evolve into broad trends.

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

While these narratives can trigger short-term market activity, they fail to develop into lasting, market-wide rallies. This reflects macro volatility, market fatigue after last year’s overextension, and insufficient liquidity in altcoins to sustain narrative breakthroughs beyond initial phases. As a result, altcoin rallies are more tactical than high-confidence trend phases.

Meme coins: narrowing active scope

“Meme coins peaked in Q1 2025 and failed to recover, as trading became more dispersed and narrowed, unable to regain support.”

Meme coins entered 2025 with the most crowded market profile, characterized by rapid issuance, sustained bullish sentiment, and price action reinforcing narratives. However, this state abruptly ended. Unlike other sectors with higher beta coefficients, Meme coins turned downward earlier and more decisively, never regaining upward momentum.

Despite sharp price retracements, the absolute number of OTC Meme coin transactions remained healthy at all times. Even at year-end, monthly traded tokens remained around 20, indicating trading interest persisted. The change was in activity patterns: in practice, the number of tokens involved per month decreased significantly, with activity concentrated on specific tokens rather than broad Meme coin trading.

Part 2: Derivatives

Wintermute’s OTC derivatives data shows strong growth, driven by increased market volatility and larger trades. OTC has become the preferred venue for executing complex, capital-efficient structured products, offering price certainty and privacy.

CFDs: expanding underlying assets

“In 2025, the underlying assets for CFDs further expanded, with futures increasingly favored as capital-efficient exposure tools.”

Wintermute’s OTC desks saw the number of tokens used as CFD underlyings double year-over-year, from 15 in Q4 2024 to 46 in Q4 2025. This sustained growth reflects the market’s adaptation to using CFDs to access a broader range of assets, including long-tail tokens, in a capital-efficient manner.

The rising demand for CFDs indicates a market shift toward obtaining capital-efficient exposure via futures. Perpetual open interest grew from $120 billion at the start of the year to $245 billion in October, but the market’s risk appetite sharply declined after the October 11 liquidation event.

Options: increasing strategic complexity

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

Building on the previous surge in CFDs and futures, Wintermute’s OTC data shows that counterparties increasingly turn to options to construct more customized and complex crypto exposures.

This shift has driven a sharp increase in options activity: from Q4 2024 to Q4 2025, nominal trading volume and number of trades grew approximately 2.5 times year-over-year. This is mainly due to more counterparties — especially crypto funds and digital asset funds — adopting options strategies to generate passive income.

The chart below tracks quarterly OTC options activity relative to Q1 2025, clearly illustrating the growth trend throughout 2025. By Q4, nominal volume reached 3.8 times Q1 levels, and trade counts 2.1 times, indicating continued growth in both trade size and frequency.

Part of this volume growth stems from the rise of systematic options strategies involving holding and rolling positions over time. This marks a significant shift from previous years, when options were mainly used for directional bets.

To understand the evolution of options flows, we further examine BTC (which still accounts for a large share of 2025 nominal volume). The chart shows quarterly distributions of long and short calls and puts.

The composition of BTC options flows in 2025 reflects a clear shift: from a focus on bullish call buying to a more balanced use of calls and puts, with activity increasingly centered on yield generation and structured, repeatable strategies. Yield strategies have become more common, with investors selling puts and covered calls to earn income, increasing stable supply and suppressing volatility. Meanwhile, demand for downside protection remains strong, with persistent use of put longs, as BTC failed to break previous highs. Overall, the market is more focused on earning yields and managing risks rather than betting on further upside.

Naked call buying declines further, confirming that options are used less for directional bullish exposure and more for systematic strategies. These dynamics collectively indicate that, compared to previous years, the options market in 2025 is maturing and user base becoming more professional.

Part 3: Liquidity

Cryptocurrencies have historically been a channel for excess risk appetite. Due to weak valuation anchors, embedded leverage, and high dependence on marginal capital flows, crypto prices are highly sensitive to changes in the global financial environment. When liquidity is loose, risk tolerance rises, and capital naturally flows into crypto; when tightening occurs, structural buy-side issues quickly surface. Therefore, crypto has always fundamentally depended on global liquidity, and will continue to do so.

In 2025, macroeconomic conditions are the key drivers of crypto prices. Despite a backdrop of easing interest rates, improved liquidity, and economic strength — typically supporting risk assets — crypto performance remains weak. We believe two key reasons underlie this disconnect: retail investor attention and new liquidity channels.

Retail investor attention: crypto is no longer the “first choice” risk asset

“In 2025, cryptocurrencies lost their status as the first-choice risk asset for retail investors.”

Despite increased institutional participation, retail remains the cornerstone of crypto markets. The poor performance in 2025 is mainly due to dispersed retail attention and a weakening rotation effect of crypto as a first-choice risk asset.

Multiple factors influence this, but the two most prominent are: technological advances lowering market entry barriers, making other investment opportunities (especially in AI and related fields) more accessible, offering similar risk profiles, narratives, and return potentials, thus dispersing focus from crypto. Meanwhile, we are witnessing a normalization after 2024 — retail participation was extremely high that year, initially flooding into Meme coins, then shifting toward AI proxies at year-end. Market normalization is inevitable.

Hence, retail investors now favor stock themes like AI, robotics, and quantum tech, while BTC, ETH, and most altcoins lag behind as major risk assets. Crypto is no longer the default outlet for excess risk-taking.

Liquidity channels: ETF and DAT as new pathways

“Today, ETF and DAT, together with stablecoins, have become prominent channels driving capital into crypto markets.”

BTC and ETH prices dipped slightly, but the relative weakness was most evident in altcoins. Besides weak retail participation, the key factors are the shifts in liquidity and capital entry methods.

Until two years ago, stablecoins and direct investments remained the main channels for capital inflow. However, ETFs and DATs have structurally changed the liquidity injection ecosystem.

Earlier this year, we summarized crypto liquidity into three core pillars: stablecoins, ETFs, and DATs. They form the main channels for capital inflow into crypto.

Stablecoins are one of the entry points: they remain crucial for settlement and collateral but now mainly serve as a role in capital entry rather than the dominant source.

ETFs channel liquidity into the top two assets: inflows constrained by investment scope, enhancing depth and resilience of major assets but with limited spillover effects beyond BTC and ETH.

DATs introduce stable, non-cyclical demand: fund allocations further reinforce concentration in major assets, absorbing liquidity without naturally expanding risk appetite.

Liquidity does not only flow through ETFs and DATs, but these channels have become increasingly important. As mentioned earlier, their investment scope is expanding, beginning to allow exposure beyond BTC and ETH, mainly involving other blue-chip tokens. However, this process is gradual, and benefits for altcoins will take time to materialize.

In 2025, crypto is no longer driven by broad market cycles. Instead, rallies are limited to a few assets with concentrated liquidity, while most of the market underperforms. Looking ahead to 2026, market performance will depend on whether liquidity disperses to more tokens or continues to concentrate in a few large ones.

2026 Market Outlook: Moving away from pure cyclical patterns

“The market in 2025 failed to deliver the expected rally, but this may mark the beginning of a shift from speculative assets toward a more mature asset class.”

The 2025 market performance demonstrates that the traditional four-year cycle pattern is gradually losing effectiveness. Our observations suggest that market behavior is no longer dominated by a self-fulfilling four-year narrative but instead depends on liquidity flows and investor focus.

Historically, crypto-native wealth, like a single, interchangeable pool of capital, allowed Bitcoin’s gains to naturally spill over into main tokens and then into altcoins. Wintermute’s OTC data shows this transmission effect has weakened significantly. New capital tools — especially ETFs and DATs — have evolved into “closed ecosystems.” While they sustain demand for a few blue-chip assets, capital does not naturally rotate into broader markets. With retail interest shifting heavily toward stocks and prediction markets, 2025 has become an extremely concentrated year — the vast majority of new funds are absorbed by a few mainstream assets, while the rest of the market struggles to sustain continuous growth.

Three possible paths for 2026

2025 was a year of significantly narrowed market breadth. As mentioned, the average altcoin rally duration shrank from about 60 days last year to around 20 days. Only a few selected tokens performed well, while the broader market continued to decline under selling pressure.

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

Expansion of ETF and DAT 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 universe. Early signs are emerging, with more ETF applications for SOL and XRP being submitted.

Mainstream coins leading the rally: Like in 2024, if Bitcoin (and/or ETH) can rally strongly, it could generate a wealth effect spilling over into broader markets. But how much capital will ultimately flow back into digital assets remains uncertain.

Market attention returning: A less likely scenario is that retail focus shifts significantly back into crypto from stocks (including themes like AI, rare earths), bringing new capital inflows and stablecoin issuance.

The market’s direction in 2026 will depend on whether at least one of these catalysts effectively drives liquidity beyond a few main assets. Otherwise, market concentration will persist.