The attainment of Bitcoin’s record valuation was crucially aided by inflows into exchange-traded funds and robust crypto treasury demand; however, these same factors are currently driving its depreciation, according to NYDIG’s Greg Cipolaro.
The fundamental forces that propelled Bitcoin’s ascent to an October apex are now cited as the agents driving its current price erosion toward multi-month lows. Furthermore, reversals in digital asset treasuries and crypto fund withdrawals suggest “genuine capital departure,” rather than merely adverse sentiment, as concluded by NYDIG.
In a note issued Friday, NYDIG head of research Greg Cipolaro stated that the momentum for Bitcoin’s (BTC) prior cycle was fundamentally driven by inflows to exchange-traded funds (ETFs) and demand for Digital Asset Treasury (DAT).
Nonetheless, Cipolaro explained that a substantial liquidation incident early in October witnessed a reversal of ETF inflows, a plunge in treasury premiums, and a decrease in stablecoin provisioning. This shift was construed as liquidity exiting the system, exhibiting “classic indications” that the upward trajectory was diminished.
“Historically, once that loop breaks, the market tends to follow a predictable sequence. Liquidity tightens, leverage attempts to re-form but struggles to gain traction, and previously supportive narratives stop translating into actual flows.”
“We’ve seen this in every major cycle. The story changes, but the mechanics don’t. The reflexive loop pushes the market up, and its reversal sets the stage for the next phase of the cycle,”
Cipolaro added.
ETF Outflows Rise as Bitcoin Dominance Continues to Increase
Spot Bitcoin ETFs, which Cipolaro highlighted as the principal triumph of this cycle, have been transformed from a dependable source of capital influx “into a significant challenge.” Nevertheless, a broader range of determinants—such as global liquidity changes, macroeconomic developments, market architecture strain, and behavioral tendencies—are still observed to be influencing Bitcoin.
“Bitcoin dominance tends to surge during cyclical drawdowns, as speculative assets unwind more aggressively and capital consolidates back into the most established, most liquid asset in the ecosystem. We’ve seen this dynamic repeatedly and we’re seeing it again,”
he said.
Bitcoin market share subtly climbed above 60% in early November and has been established at approximately 58% as of Monday, according to the records maintained by the crypto data platform CoinMarketCap.
DATs and Stablecoins See Declines
Digital Asset Treasuries (DATs) and stablecoins also constituted a crucial source of fundamental demand for Bitcoin. However, Cipolaro noted that DAT premiums, where shares traded relative to Net Asset Value, have been compressed universally, and stablecoin availability has dipped for the initial time in months. This suggests that liquidity is being withdrawn from the market ecosystem by investors.
Even if the market retraction intensifies, Cipolaro contended that the Digital Asset Treasury (DAT) sector retains considerable operational scope before genuine financial strain is considered worrisome.
“Importantly, while these reversals mark a clear shift from a once-strong demand engine to a potential headwind, no DAT has yet shown signs of financial distress.”
“Leverage remains modest, interest obligations are manageable, and many DAT structures allow issuers to suspend dividend or coupon payments if needed,”
he added.
Despite the recent downward movement, Cipolaro maintains the view that the “long-term narrative for Bitcoin is preserved,” as it persistently garners institutional acceptance, sovereign interest steadily accumulates, and its function as a neutral, programmable monetary commodity is still considered highly relevant.
“Nothing in the past few weeks changes that long-horizon trajectory. But the cycle story, the one driven by flows, leverage, and reflexive behavior, is now asserting itself far more forcefully,”
he said.
“Investors should hope for the best, but prepare for the worst. If past cycles are any guide, the path forward is likely to be uneven, emotionally taxing, and punctuated by sudden dislocations.”
