Altcoins Face Persistent Challenges as Stablecoins Gain Dominance: A Market Shift?

As of April 2025, the cryptocurrency market continues to witness a notable divergence between altcoins and stablecoins. While altcoins grapple with volatility and declining investor confidence, stablecoins have emerged as a haven, attracting significant capital inflows. This trend raises critical questions about the evolving dynamics of digital asset markets. Are we observing a temporary adjustment or a fundamental restructuring of risk preferences among market participants? The resilience of stablecoins, backed by fiat reserves or algorithmic mechanisms, contrasts sharply with the struggles of speculative altcoins, many of which have failed to regain their previous all-time highs (ATHs). Analysts point to regulatory clarity, institutional adoption, and macroeconomic factors as key drivers behind this divergence. Meanwhile, decentralized finance (DeFi) platforms increasingly rely on stablecoins for liquidity provisioning and yield farming, further cementing their role as a cornerstone of crypto ecosystems. This paradigm shift may redefine portfolio strategies, with investors prioritizing capital preservation over high-risk, high-reward altcoin bets.

From fringe utility to financial backbone

A few years ago, stablecoins were primarily used for fast trades and arbitrage. Fast-forward to today, they are backstop infrastructure for crypto finance.

Stablecoins alone enabled a staggering $27.6 trillion in volume in 2024, more than Visa processed during the same period. Almost all of that volume was settled on Ethereum, solidifying the chain’s lock on stablecoin trading.

The numbers speak loudly, stablecoins are no longer a niche as they are becoming the foundation of digital value transfer.

Source: Bitwise

Are stablecoins a safety net?

The growing market capitalization of stablecoins does not merely indicative of wider usage – it is also a signal of investor attitude.

In times of high volatility or downturns in the crypto market, investors often rotate capital from altcoins into stable assets like USDT, USDC and DAI.

Stable tokens serve as a haven while still allowing participation in the world of cryptocurrencies without having to dip into other spaces.

This behavioral trend is more pronounced in bear cycles, where risk appetite is secondary to the need to preserve capital. The result is an increased inflow into stablecoins and away from high-beta assets like altcoins.

Altcoins are squeezed as liquidity flows

As stablecoins rise, altcoins are doing the opposite. The total altcoin market cap has been losing ground for a few weeks since early December.

This is a sign that the supply increase may not be reflecting net new capital entering crypto—but rather capital cycling within the market.

As more altcoins are converted into stablecoins, there is less liquidity available to assist in fueling altcoin rallies. That can stifle price action and extend recovery times.

It is a dynamic that can amplify a bearish momentum in the altcoin universe.

Source: TradingView

If stablecoins continue their current trajectory, their role in the crypto economy will expand further. And with volume already surpassing Visa in 2024, it is clear that this is just the beginning.

The next few years could make today’s $27.6 trillion figure look modest.