The Altseason Rotation Has Begun: Here's the Data Behind the Next Crypto Cycle

Mike Nato from The DeFi Report breaks down the on-chain data suggesting altseason is finally arriving, plus his exact portfolio allocation strategy for the cycle's end game.

Key Takeaways

• Bitcoin's golden cross just triggered after a 50% move from $75K, signaling potential short-term correction but confirming bull market structure
• ETH/BTC ratio hit multi-year lows around 0.04 but is showing signs of reversal as institutional capital prepares to rotate
• MVRV Z-score at 2.8 suggests significant upside potential remaining, with previous cycles peaking above 7-12 standard deviations
• Fiscal spending policies indicate continued liquidity injection despite initial austerity fears around DOGE and tariffs
• Long-term Bitcoin holders are just beginning to distribute to short-term holders, creating classic cycle rotation dynamics
• Current macro setup resembles early 2021 when stablecoin regulatory clarity triggered massive ETH outperformance
• Asset selection will be critical as market becomes more sophisticated – not everything will pump like previous cycles
• Memecoins can be analyzed fundamentally using on-chain data for timing and conviction, particularly ecosystem-specific plays
• Portfolio strategy: 60% Bitcoin, 30% cash, 10% split between ETH ecosystem plays and high-beta speculation

The 1940s of Crypto Fundamentals

Here's something that'll give you perspective on where we actually are in crypto's maturation: Warren Buffett bought his first stock in 1942 when he was 11 years old. At that time, there was basically no concept of fundamental valuation for equities. Discounted cash flow had literally just been invented in 1938, and it was this esoteric concept that almost nobody understood.

Most stocks just traded on narratives and animal spirits. Sound familiar?

Mike Nato from The DeFi Report puts it perfectly: "We're still in the 1940s with respect to crypto fundamentals." The market hasn't converged on consensus valuation methods yet, which means we're still mostly seeing speculation based on relative comparisons to Bitcoin and its store-of-value narrative.

• Traditional DCF analysis emerged as a "social construct" that the equity markets eventually adopted for relative valuation
• Crypto will likely develop its own unique combination of cash flow analysis and other KPIs over time
• The process of achieving consensus on fundamental metrics is still playing out across the industry
• Current speculation phase is normal for any emerging asset class – this is how industries develop

But here's what's exciting: we're starting to see real economic value generation from these protocols. They're producing cash flows, doing buybacks, and showing actual fundamental metrics that sophisticated investors can analyze. The data is getting richer, and the tools for analysis are becoming more sophisticated.

The question Mike and the team at Bankless are tackling in their monthly fundamentals series is basically this: what will crypto's version of DCF analysis look like? And how do we position ourselves to take advantage while the market is still figuring it out?

The Macro Setup: From Austerity Fears to Fiscal Reality

Remember all those concerns about DOGE austerity measures and tariff-induced economic contraction? Yeah, those are basically dead in the water now. Mike was getting pretty bearish toward the end of 2024 and early 2025, expecting a pullback as Trump's policies looked like they might actually shrink government spending.

But here's what actually happened: the political reality of governing kicked in. You can't just fire half the government workforce. Tariffs aren't popular when people see their grocery bills. And Elon Musk, despite his efficiency obsession, can only cut so much before running into congressional roadblocks.

The result? We're back to fiscal expansion mode, which is exactly what crypto needs to maintain its bull market structure.

• Government deficits represent a surplus flowing into the economy – that's basic MMT (Modern Monetary Theory) logic
• The Treasury Department is in the driver's seat now, not the Federal Reserve sitting on their hands
• Fiscal spending continuation means continued liquidity injection into markets
• Bitcoin bottomed around $75K and has since moved 50% higher, confirming the bull market structure held

Mike's particularly focused on something called the supplemental leverage ratio – technical banking regulation stuff that basically allows banks to hold more treasuries and lever them up. When combined with potential Treasury buyback programs, this creates what he calls "shadow QE" that keeps liquidity flowing.

The timing couldn't be better for crypto. We're also potentially getting the stablecoin bill (Genius Act) passed, which could create massive new demand for US treasuries. Mike points out this mirrors early 2021 when an OCC ruling on stablecoins preceded ETH's massive 65% move in one week.

Bitcoin's Golden Cross: What the Charts Actually Tell Us

Let's talk about what's happening with Bitcoin's technical setup, because this isn't your typical TA triangle-drawing exercise. Mike focuses on longer-term momentum indicators that actually provide useful signals for position sizing and cycle timing.

Bitcoin just achieved a golden cross – where the 50-day moving average crosses above the 200-day moving average. This happened after what's called a "death cross" a couple months ago, which ironically marked the bottom rather than continued downside.

• Death crosses often mark bottoms because they're backward-looking indicators
• Golden crosses can be counter-signals suggesting short-term corrections after aggressive moves
• Bitcoin's moved nearly 50% in six weeks, which is pretty wild for a $2 trillion asset
• Previous cycles show golden crosses can either lead to corrections or continued ripping higher

What's more interesting is ETH's setup. The 50-day moving average is trying to make a run toward the 200-day, but there's still a significant gap. If ETH achieves its own golden cross, Mike projects that would happen around $3,000 – which could be the confirmation signal that altseason rotation is truly underway.

This isn't about predicting exact prices or timing the market perfectly. Mike's clear that he's not a trader and doesn't try to predict short-term moves. Instead, these are momentum indicators that help understand where we are in the cycle and when conviction should be building or waning.

The Long-Term Holder Distribution Cycle

Here's where the on-chain data gets really interesting. Bitcoin has this fairly predictable pattern where long-term holders (people who've held for 155+ days) start distributing their coins to short-term holders as prices rise. This creates the classic cycle dynamics we've seen repeatedly.

Right now, we're just at the beginning of this distribution phase. Long-term holders are starting to look at Bitcoin's price and think "maybe I should take a little off the table," but we're nowhere near the euphoric selling that marks cycle tops.

• Local market tops correlate with bottoms in the long-term holder to short-term holder ratio
• January/February saw some distribution, followed by correction, now rebuilding again
• This ratio helps identify when markets are getting overheated versus just getting started
• Even Michael Saylor fits this pattern – though he never sells, most long-term holders eventually do

The key insight here is that Bitcoin can't just teleport to $500K like some bulls predict. Human psychology doesn't work that way. People take profits, markets correct, and then the cycle continues. Understanding this helps set realistic expectations for both timing and magnitude of moves.

What's particularly interesting is how this dynamic feeds into altseason. As Bitcoin holders realize gains, they often rotate some of that wealth into higher-risk, higher-reward altcoins. It's the classic wealth effect that drives risk-on behavior at the end of cycles.

MVRV Z-Score: How Much Upside Is Actually Left?

One of the most fascinating metrics Mike tracks is something called MVRV Z-score, which compares Bitcoin's market value to its "realized value" – essentially the average cost basis of all coins on the network. Right now, that average cost basis is around $46,000.

The Z-score tells you how many standard deviations Bitcoin is trading above or below its average price. Currently, we're at 2.8, which means the average Bitcoin holder is sitting on about 180% gains. That sounds like a lot until you realize previous cycles have seen this metric hit 7-12.

• 2021 cycle peaked around 7-8 on the Z-score, meaning average holders had 700-800% gains
• 2017 cycle peaked near 12, representing over 1,200% average gains
• Current 2.8 reading suggests significant upside potential remains
• Each cycle shows diminishing returns due to Bitcoin's growing size and maturity

Here's the math that makes this concrete: if Bitcoin hit a Z-score of 5 (which would be high but not unprecedented), that would put the price around $180K. A reading of 4.5 gets you to roughly $150K. These aren't wild moonshot predictions – they're based on historical patterns of how euphoric the market can get.

The denominator effect is important here too. As long-term holders sell to new entrants at higher prices, the realized value (average cost basis) increases, making it harder for the market value to separate dramatically. This creates natural resistance to extreme valuations as cycles mature.

ETH/BTC Ratio: The Altseason Catalyst

If you want to understand when altseason truly begins, watch the ETH/BTC ratio. It's been in a brutal downtrend, hitting levels not seen since mid-2019. Mike admits this surprised him – he didn't expect it to fall all the way back to those resistance levels.

But that's exactly what makes the setup so compelling. When assets get "so hated" that sentiment turns extremely negative, they often become the best contrarian plays. ETH has been the poster child for disappointment this cycle, which might be exactly why it's positioned for outperformance.

• The ratio hit extreme lows around 0.04, levels not seen since the 2019 bear market
• Previous cycle saw this ratio reach 0.08, which would put ETH around $9,000 at current Bitcoin prices
• Recent weeks showed signs of reversal with ETH's brief 50% move in one week
• Institutional capital rotation from Bitcoin to ETH could accelerate this dramatically

The psychology here is crucial. Most crypto investors have significant Bitcoin allocations that have performed well. As the market heats up and people want to take on more risk for potentially larger gains, the natural progression is rotating some Bitcoin profits into ETH and then further out the risk curve.

Mike doesn't have a strong opinion on whether ETH or Solana will outperform during altseason, but he thinks ETH's extreme negative sentiment actually gives it a chance to surprise to the upside. Sometimes the most hated assets become the biggest winners when sentiment shifts.

Asset Selection: Why Not Everything Will Pump

Here's where this cycle might be different from 2021's everything-goes-up mentality. The market has matured, there are way more tokens in existence, and investors are becoming more sophisticated. Asset selection is going to be absolutely critical.

Mike's thesis is that we'll see a barbell effect: highly speculative attention-grabbing assets on one end, and tokens with strong fundamental stories on the other end. The middle ground of mediocre projects without compelling narratives or real economic value might get left behind.

• Protocols showing real cash flows, doing buybacks, and demonstrating sustainable business models will attract institutional capital
• Memecoins and attention-based plays will still work but require much more precise timing and selection
• The days of "everything pumps regardless of what you're holding" are probably over
• Four years of additional maturity means more sophisticated analysis and differentiation

This is actually bullish for investors who do their homework. If you can identify the assets with genuine fundamental value or the memecoins with the strongest community dynamics and attention capture, the dispersion between winners and losers could be massive.

The key is understanding what category you're playing in. Long-term fundamental bets require different analysis than short-term speculation plays. Mike's clear about this distinction in his own portfolio construction.

The Memecoins Fundamentals Paradox

Wait, what? Fundamental analysis of memecoins? This sounds like an oxymoron, but Mike's team at The DeFi Report actually does data-driven analysis on meme tokens. And honestly, it makes perfect sense when you think about it.

Memecoins aren't just random gambling – they're attention economies with measurable on-chain metrics. You can track holder distribution, trading volumes, social metrics, and ecosystem positioning to build conviction around timing and selection.

• Mike's current meme positions: PEPE (ETH ecosystem), BONK (Solana ecosystem), SPX6900, and GIGA
• These function as high-beta plays on their underlying ecosystems – if ETH goes up, PEPE should go up multiples
• The key is treating them as short-term speculation, not long-term investments
• On-chain data helps with timing entries and exits rather than hoping for random pumps

The ecosystem play angle is particularly smart. Rather than holding SOL directly, you can express that view through BONK and potentially capture more upside if the thesis plays out. Same with PEPE for Ethereum exposure.

But Mike's extremely clear these aren't buy-and-hold investments. "This is not the long-term investing we've talked about," he emphasizes. It's end-of-cycle speculation with clear risk management and exit strategies.

Portfolio Construction for Cycle End Game

Here's exactly how Mike is positioned right now, which gives us a window into how sophisticated crypto investors are thinking about the current moment:

30% Cash – This is higher than his usual 10% minimum because he's preparing for potential summer volatility and positioning for the next bear market accumulation phase.

60% Bitcoin (of crypto allocation) – Still the core holding, but he's not adding aggressively at these levels since the risk/reward has shifted.

ETH Ecosystem (19% of crypto) – Direct ETH holdings plus PEPE as a high-beta expression of ETH ecosystem bullishness.

Speculation Plays – Celestia (data availability bet), Worldcoin (AI narrative with actual L2 usage), and the memecoins mentioned above.

• The cash position reflects conviction that better opportunities will emerge in the next bear market
• Bitcoin remains the largest holding but he's not as interested at current levels
• Risk is being pushed further out the curve through ecosystem betas and narrative plays
• Everything has an exit strategy based on cycle timing rather than indefinite holding

What's fascinating is how Mike thinks about expressing views indirectly. Instead of buying SOL, he buys BONK. Instead of just ETH, he adds PEPE for extra beta. This shows sophisticated understanding of how to amplify conviction while managing position sizing.

The Worldcoin position is particularly interesting – it's the second-largest L2 by blobs paid to Ethereum L1, which most people don't realize. But it's also a low-float token with massive future unlocks, so it's purely an end-of-cycle speculation play.

The Sell Strategy: Planning the Exit

Mike hints at something crucial that most crypto investors ignore: having an actual exit strategy. It's not enough to identify good entry points – you need to know when and how you're going to take profits.

His approach is scaling out gradually rather than trying to time exact tops. The goal is ending this bull run with a much larger cash position to deploy during the next bear market. Some Bitcoin gets held forever, but the speculation plays definitely have expiration dates.

• Asset selection drives exit timing – memecoins and low-float tokens need active management
• The plan is rotating gains back into cash and waiting for the next accumulation phase
• Some core Bitcoin holdings never get sold, potentially rotating into other L1s over time
• Bear market preparation involves going deep on fundamental analysis for better next-cycle conviction

This long-term accumulation mindset separates serious crypto investors from gamblers. The goal isn't just riding this cycle, but positioning for multiple cycles of wealth building.

The research work Mike's doing on L1 fundamentals during this bull run is specifically aimed at having strong conviction during the next bear market. When everything's down 90% and sentiment is terrible, that's when the real money gets made by investors with preparation and conviction.

What This Means for Your Strategy

If Mike's analysis is right, we're in the early stages of altseason rotation but not the euphoric blow-off top phase. That suggests a few months of opportunity ahead, followed by potential summer volatility as economic data comes in.

The key insight is that this isn't 2021 where everything goes up. Asset selection matters enormously. You need either strong fundamentals that will attract institutional flows, or perfect timing on attention-based speculation plays.

For most investors, the takeaway is probably focusing on the major ecosystems (ETH, SOL) while maintaining significant cash reserves for both opportunities and protection. The exact meme strategies require too much precision for casual implementation.

But the broader cycle dynamics look intact. Bitcoin holders are just starting to take profits, ETH is showing signs of life against BTC, and the macro setup supports continued risk-on behavior. The rotation has begun – the question is whether you're positioned for it.