Crypto glossary
Sector rotation
Sector rotation is the movement of capital between groups of crypto assets, such as layer 1s, DeFi, memecoins or AI tokens, as the market cycle evolves.
Crypto investors group tokens into sectors that share a use case or story: smart contract platforms, DeFi, gaming, memecoins, AI, real-world assets and others. Money rarely flows into all of them at once. Instead it tends to move from one theme to the next as narratives gain attention, early winners become expensive and traders look for laggards.
A commonly described sequence in bull markets starts with bitcoin, moves to ether and large caps, and then spreads to smaller and more speculative tokens, a phase often called altcoin season. Analysts track rotation through sector indices, relative performance charts, bitcoin dominance and on-chain flows into specific ecosystems.
Rotation is easier to describe after the fact than to trade. Narratives can fade within weeks, sector baskets are often dominated by one or two tokens and many themes never recover after their peak. Chasing whichever sector led last month is a common way to buy near the top.
Example
After a strong run in AI-related tokens, traders take profits and move into memecoins on a different chain, whose sector index outperforms the market for the next three weeks.