The crypto market enters the "fragmentation" era: Why the "Shanzhai" season narrative is coming to an end

According to Gate market data, as of May 18, 2026, the price of Bitcoin is reported at $77,046.7, up over 11% in the past 30 days, but down approximately 22% over the past year, reflecting a complex landscape of bullish and bearish forces intertwined.

Meanwhile, investors are experiencing a confusion that is difficult to explain with a single narrative: the stablecoin market size continues to expand, with data from DefiLlama showing a total market cap of about $321.6 billion; tokenized real-world assets (RWA) on-chain market cap has surpassed $30 billion; Bitcoin ETFs have seen six consecutive weeks of inflows—yet the “altcoin season” has yet to arrive, with many altcoins and Bitcoin’s relative performance remaining sluggish, and Bitcoin’s market share holding high at 57.17% (based on Gate data as of May 18, 2026).

This divergence—“macro bullish, micro differentiation”—points to a deeper industry question: has the crypto market already split from the past “synchronized bull and bear” unified market into multiple independent economic sectors?

Asset management firm Bitwise CEO Hunter Horsley provided a systematic framework in a public comment in May 2026: the crypto industry has fractured into at least four independent sectors—stablecoins and payments, Bitcoin asset class, real-world asset tokenization and on-chain financial services, and blockchain infrastructure.

This framework offers a clear explanatory logic for the structural features of the current market.

The End of the “Synchronized Bull and Bear” Era

Factually, Horsley stated in mid-May 2026: the crypto industry is no longer a single market but a collection of at least four distinct sectors. Each sector has its own growth drivers, regulatory paths, and adoption curves, and phenomena such as “strong Bitcoin performance, continued pressure on DeFi tokens, and rapid stablecoin expansion” can coexist.

This judgment is not made in isolation. Earlier that month, Horsley further clarified at Consensus 2026 in Miami: “The four-year crypto market cycle has ended.” He explained that the widely accepted “three years up, one year down” pattern in previous markets was broken in the last cycle: 2025 saw a decline, and the cycle rhythm based on the old logic has since become invalid.

On a structural level, this “cycle end” narrative rests on multiple systemic changes. Since the approval of a US spot Bitcoin ETF in January 2024, institutional capital has continued to flow into Bitcoin via compliant channels; stablecoins have transformed from “fuel” for crypto trading into an independent payment and settlement infrastructure, with market size doubling from about $227 billion to roughly $320 billion; DTCC selected Chainlink as the data infrastructure layer for its tokenized collateral platform, planning to pilot tokenized securities trading in July 2026 and fully launch the platform in October; JPMorgan applied for an Ethereum-based on-chain US Treasury money market fund JLTXX—none of these events are part of a “crypto bull market,” but rather represent industry infrastructure developments progressing along independent tracks.

Under the overlay of these changes, a unified “crypto market cycle” is being replaced by four separate value-creating tracks.

Quantitative View of the Four-Partition Pattern

Fission One: Stablecoins—From Trading Fuel to Financial Infrastructure

Stablecoins are the earliest sector to detach from speculative cycles. As of May 2026, data from DefiLlama shows the total stablecoin market cap at about $321.6 billion, with USDT around $189.8 billion and USDC approximately $76.9 billion.

More important than market size is the structural shift in growth drivers. Stablecoin growth no longer depends on the crypto market’s bull-bear rhythm but is driven by real commercial payment needs. On April 29, 2026, Visa disclosed that its stablecoin settlement pilot has an annualized volume of $7 billion, with a 50% quarter-over-quarter growth across nine blockchains. Circle’s Q1 FY2026 revenue and reserve income grew 20% year-over-year to $694 million, with USDC circulation up 28% YoY to $77 billion.

Meanwhile, the annual stablecoin settlement volume in 2025 reached $33 trillion, a 72% increase from the previous year—far exceeding Visa’s annual transaction volume of about $16.7 trillion.

The core feature of this sector is: enterprises and institutions using stablecoins for cross-border settlement and payments behave almost independently of crypto market speculation.

Fission Two: Bitcoin—As an Independent Macro Asset

Bitcoin’s capital flow cycle has significantly decoupled from the broader crypto market. As of May 18, 2026, Bitcoin’s market share is 57.17% (source: Gate data).

In terms of capital inflow structure, institutional channels are the main driver. Data from CoinShares shows that in the week ending May 8, 2026, net inflows into digital asset investment products were about $858 million, with Bitcoin accounting for roughly $706 million, and total assets under management reaching $160 billion.

These funds come from hedge funds, family offices, and institutional allocators, with core valuation logic centered on interest rate expectations, dollar strength, and global liquidity—similar to traditional bond and equity allocations. Bitcoin is increasingly integrated into macro asset allocation frameworks, competing and complementing assets like gold and government bonds.

Simultaneously, volatility in digital asset ETFs reveals the rationality of institutional capital. During the week of May 11–15, 2026, US spot Bitcoin ETF net outflows were about $330k, ending six weeks of continuous inflows. Such capital flows can reverse sharply within a single trading week, with trading patterns vastly different from retail-driven cycles.

Fission Three: Tokenization and On-Chain Finance—Wall Street’s Production Line Switch

The RWA tokenization track saw a series of landmark events in 2026, but their impact on the overall crypto market was minimal—precisely demonstrating its decoupling from crypto trading markets.

As of early May 2026, the total on-chain RWA market cap reached $30.24 billion, with a monthly increase of about 4.39%. By mid-May, data from RWA.xyz showed the on-chain RWA market cap further rose to approximately $31.42 billion. DTCC selected Chainlink as the data infrastructure layer for its tokenized collateral platform, covering Russell 1000 components, mainstream ETFs, and US Treasuries, with the platform scheduled to launch in Q4 2026; JPMorgan applied for an Ethereum-based on-chain US Treasury money market fund JLTXX to meet stablecoin reserve asset requirements under the GENIUS Act; Galaxy Digital and State Street launched a tokenized cash management fund SWEEP; Western Union introduced USD-pegged stablecoin USDPT.

Moody’s estimates that the tokenized money market fund’s assets under management reached about $10 billion in 2026, with a predicted “slow then fast” migration curve for asset tokenization.

The core logic here is the on-chain migration of traditional financial infrastructure, with participants, investment cycles, and technical evaluation standards markedly different from native crypto markets. The pace of tokenization depends on regulatory frameworks, institutional compliance processes, and technological maturity, rather than crypto trading sentiment.

Fission Four: Blockchain Infrastructure—Operational Progress Doesn’t Necessarily Boost Token Prices

The fourth independent sector is blockchain infrastructure, including scalability solutions, custody services, wallets, data availability, and cross-chain interoperability protocols.

Its most notable feature is the “decoupling of operational progress from token price.” For example, some Layer 2 networks continued to set transaction volume records in 2026, but their native tokens did not rise accordingly, often stagnating or declining.

This decoupling stems from the fact that adoption of blockchain infrastructure does not necessarily translate into protocol revenue or token value capture. Users may pay gas fees in native tokens, but with modular architectures and abstraction layers becoming more prevalent, a structural disconnect has emerged between transaction execution and value capture. Developers can choose different execution, data availability, and settlement layers for flexible combinations, putting economic models of protocol tokens under pressure.

Quantitative Comparison Summary

Data sources: DefiLlama, RWA.xyz, CoinShares, Circle, etc., as of mid-May 2026.

From “When Will the Altcoin Season Come” to “Will the Altcoin Season Come Again”

Centered around the “four-partition” narrative, mainstream market views can be dissected from three perspectives: institutions, retail investors, and analysts.

Institutional Perspective: The Cycle Is Dead, Industry Is Mature

Horsley’s view represents the core institutional judgment. His logic chain: Bitcoin ETFs attract allocators, stablecoins are driven by payment needs, tokenization is pushed by traditional finance—these three forces are unrelated to retail trading sentiment, so a unified bull-bear cycle must disintegrate.

This view is supported by some market data. Previously, Bitwise CIO Matt Hougan expressed a similar stance, believing the 2026 market will break the four-year cycle. Several research institutions in their annual outlooks emphasized independent growth tracks such as stablecoin payments, RWA tokenization, and AI integration, rather than discussing within the “next altcoin season” framework.

Retail Perspective: “Altcoin Season Absence” Creates Strategy Confusion

Retail investors’ anxiety centers on a key question: will the previous surge of altcoins following Bitcoin halving—where altcoin prices rose significantly 12–18 months after—recur?

This anxiety is reasonable. The altcoin season index has been in a low zone, far below 75, the threshold for confirming an altcoin season. Trading volume data shows that altcoin trading on major exchanges increased from about 31% in March to about 49% in early May, but still lags far behind the peak in 2021.

The dilemma for retail is: if the old logic no longer applies, then the previous rotation timing models will be completely invalid.

Analyst Perspective: Differentiation Intensifies but Not a Complete Rejection

Analysts tend to have more nuanced views, falling between the two extremes. Some market structure analysts note that in 2026, capital flowing into altcoins is not a full retreat but a shift toward tokens with real trading volume and network utility—such as XRP, Solana, BNB, and tokens like Hyperliquid’s HYPE, which have actual throughput and revenue models, outperforming “narrative-driven” DeFi tokens.

Meanwhile, tokens in AI, RWA, and DePIN sectors showed signs of recovery in Q2 2026. In mid-May, SUI experienced double-digit weekly gains driven by institutional staking and major fintech integrations; tokens like TON also posted double-digit increases.

In summary, institutions declare “the cycle is dead,” retail investors ask “where is altcoin season,” and analysts observe selective capital flows across sectors—each focusing on the same facts but interpreting them through very different frameworks.

Industry Impact Analysis: The Failure of Old Tools and the Need for New Analytical Frameworks

Impact on Market Participants

For institutional investors, the four-partition pattern means that traditional “crypto market beta” allocation strategies need reevaluation. Under the old framework, crypto asset allocation aimed to capture overall market upside; in the new framework, the return characteristics and risk exposures of different sectors have diverged sharply—stablecoins lean toward fixed income and payment infrastructure, Bitcoin toward macro hedging, tokenization toward traditional financial infrastructure migration, and infrastructure toward tech growth. Institutions must shift from “crypto asset allocation” to “cross-sector crypto allocation.”

For retail investors, the most immediate effect is the fundamental questioning of the reliability of “waiting for altcoin season.” Historically, after Bitcoin dominance peaked, full allocation to altcoins in 2017 (dominance from about 96% down to 60%) and 2021 (from about 60% down to 40%) generated huge gains. But in this cycle, Bitcoin’s dominance has continued to rise after reaching a record high, not retreating.

This structural bias is not short-term but a long-term feature of institutionalized capital structures. The logic of “profit outflow from Bitcoin” in traditional rotation models is significantly weakened in a fund structure dominated by ETF holders (long-term, non-rebalancing).

Impact on Industry Ecosystem

Capital centralization is reshaping the innovation ecosystem of crypto. Data from CryptoQuant shows that over the past 13 months, net outflows from altcoins totaled about $209 billion, with roughly 38% of altcoin prices near historic lows—marking the longest continuous sell-off in five years.

Project teams face dual challenges: on one hand, token prices may not reflect actual operational progress; on the other, talent and capital may further concentrate into a few leading protocols. However, this also forces altcoin projects to refocus on fundamentals and value capture. The trend in 2026 of capital flowing into “throughput-driven” tokens (like Solana, XRP, Hyperliquid) indicates the market is applying stricter standards—rising solely on narratives and community sentiment is increasingly limited.

Three Possible Paths Under the Four-Partition Pattern

Scenario One: Deepening Fission, Institutional-led Market Normalization

In this scenario, the four sectors’ independent trends further strengthen. Stablecoins accelerate into traditional payments following clear regulation like the GENIUS Act; Bitcoin’s correlation with gold continues to rise, being incorporated into more institutional multi-asset portfolios; tokenization markets see a “slow then fast” growth inflection after DTCC’s full platform launch in Q4 2026; infrastructure layer consolidates, with leading protocols forming network effects.

Under this scenario, Bitcoin’s market share could remain in the 55–65% range long-term, making a full altcoin season increasingly unlikely. Market returns shift from beta-driven to alpha-driven—investors need to seek structural opportunities within sectors rather than rely on cyclical rotation.

Scenario Two: Sector Re-coupling, New Rotation Patterns Emerge

Another possibility is that, although sectors remain independent day-to-day, certain catalysts trigger new coupling modes. For example, if RWA tokenization scales massively, pushing on-chain assets over a trillion dollars, stablecoins as settlement layers and DeFi as lending layers could see synchronized demand surges, creating positive feedback loops.

This rotation differs from the old “altcoin season” rally. Capital would prioritize real-economy-linked protocols and applications, not evenly distributing across all altcoins. Differentiation among altcoins would intensify, with a “the strong get stronger, the weak get eliminated” pattern.

Scenario Three: External Shocks Temporarily Rebind Sectors

The third scenario involves systemic external shocks temporarily breaking sector independence. Possible triggers include: major stablecoin regulation impacting on-chain liquidity; macro shifts causing Bitcoin to be used as a safe haven for selling or buying; major security incidents (like cross-chain bridge hacks or DeFi protocol attacks) shaking infrastructure confidence.

In such cases, the four sectors might show high correlation in the short term, similar to the 2022 market-wide decline. But the key is that this re-binding is short-lived and event-driven, not reversing the long-term structural differentiation. After shocks, sectors would resume their independent trajectories.

Conclusion

The emergence of the “four-partition” narrative is not a pessimistic judgment on crypto but an inevitable cognitive upgrade as the industry matures. As Horsley quotes Churchill: “This is not the end, nor even the beginning of the end, but perhaps the end of the beginning.”

The fragmentation of the crypto market from a “single bull-bear cycle” into multiple independent sectors means increased complexity and analytical dimensions. The old toolbox—anchored on Bitcoin halving cycles and altcoin season indices—is losing effectiveness. The new toolbox requires understanding the expansion of payment infrastructure, the drivers of institutional behavior, the on-chain migration of traditional assets, and the competitive landscape of modular architectures.

For market participants, instead of asking “When will altcoin season come,” it’s more relevant to consider which sector’s growth logic aligns best with their investment framework. The structural change has occurred; adapting quickly will determine positioning in the next phase of competition.