With the crypto market reeling from what seems like a never-ending beating since the Oct. 10 flash crash, it's natural for investors to wonder when or if things will start to look up again. The answer to that question is especially important, considering that those pivot moments, when capital rotates out of one sector and into a previously ignored area, tend to be where long-term wealth is quietly (and sometimes even quickly) built by those with foresight.
Are the pieces falling into place for a major rotation back into crypto, or is this just wishful thinking from battered coinholders?
Image source: Getty Images.
Why crypto looks unloved again
One of the classic precursors to a sector rotation is a big gap in valuations. Today, the gap between crypto and the stock market is stark.
The S&P 500's forward-12-month price-to-earnings (P/E) ratio is currently 23.1, which is well above its five-year, 10-year, 15-year, 20-year, and 25-year averages. The long-run median is a P/E of 17.5, so the market's current valuation is quite rich. That could have the effect of forcing value-sensitive investors to hunt for greener pastures where assets are a bit cheaper, sparking a larger rotation once they get established and prices start to trend upward.
Crypto might have what they're looking for. For 2025, the global crypto market cap is down by approximately 10%, even though exchange-traded funds (ETFs) helped push Bitcoin (BTC 1.01%) to new all-time highs earlier in 2025, and newer ETFs have paved the way for similar inflows into other key crypto assets like Ethereum (ETH +0.10%), Solana (SOL 3.25%), and XRP. Bitcoin is now down by 10% over the past 12 months, and has given back most of its year-to-date gains amid the recent sell-off.
Fear is currently gripping the market, and many investors are openly wondering if another crypto winter is on the horizon.
CRYPTO: BTC
Key Data Points
But a recent decline in price isn't enough to attract investors seeking fundamental value. On that front, the process of putting a valuation on cryptocurrencies is still an emerging art. That makes it even harder for investors to clearly see when the market is pricing something incorrectly.
The building blocks of the next rotation are in place
On the surface, crypto's recent performance looks ghastly enough to dissuade most investors. But under the surface, a couple of slow-moving trends are improving for the major crypto assets, especially for stores of value like Bitcoin, and also for smart contract platforms like Solana and Ethereum.
CRYPTO: SOL
Key Data Points
Assuming that inflation stays elevated enough to keep investors uneasy about holding fiat currency-denominated assets like cash and long-duration bonds, it's plausible that some of the capital currently parked in expensively valued places like gold or index funds could end up rotating into Bitcoin as a complementary hedge against currency debasement. For the smart contract platforms, the main long-term driver is tokenization, which you can think of as recording the ownership of bonds, funds, and other real-world assets (RWAs) on blockchains.
The total value of tokenized RWAs managed and traded on blockchains recently passed roughly $18.3 billion, which is still tiny relative to global markets, but more than quadruple the level at the start of 2023. Boston Consulting Group (BCG) has suggested that the market for tokenized assets could reach a value as much as several trillion dollars by 2030 if adoption accelerates, so there's likely still a huge amount of gas left in this trend. If even a conservative slice of that forecast RWA market lands on public chains, it should significantly deepen demand for the native tokens of these blockchains because investors need those tokens to pay gas fees. So the investment idea is to let these networks quietly become the back office of global finance and gain upside from the tolls they collect along the way.
CRYPTO: ETH
Key Data Points
Then there is the liquidity backdrop. The S&P 500's rich valuation multiple is already being justified by forecasts of rate cuts and supportive fiscal steps over the next couple of years. If those rate cuts materialize, it's likely that at least some of the extra liquidity in the financial system will leak into crypto once investors feel braver again.
So between a new growth narrative and potentially improving macro conditions, it's indeed quite possible for a big capital rotation into crypto to occur, and on a long enough timescale, it'll almost certainly happen. I wouldn't bother to bet on the precise month, though -- you shouldn't be timing the market here, you should be positioning your capital in the coins you think will be the winners of the rotation well before it occurs.
