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What fueled Bitcoin’s remarkable rise to its peak last October is now the reason for its drop to new lows. NYDIG points out that crypto treasury reversals and fund outflows indicate an “actual capital flight,” not just bad vibes in the market.
According to Greg Cipolaro, head of research at NYDIG, he mentioned that exchange-traded fund (ETF) inflows and digital asset treasury (DAT) demand were crucial during Bitcoin’s (BTC) last cycle.
However, a major liquidation event in early October turned things around, causing ETF inflows to reverse, treasury premiums to drop, and stablecoin supply to decline. This all means money is leaving the system, showing signs that the momentum is fading.
“Historically, when that flow breaks, the market usually follows a predictable pattern. Liquidity tightens, leverage tries to bounce back but struggles, and supportive narratives stop leading to actual investments.”
“We’ve witnessed this in every major cycle. The story changes, but the mechanics remain constant. The reflexive loop pushes the market higher, and its reversal sets the groundwork for the next cycle phase,” Cipolaro noted.
ETF Capital Outflows, But Bitcoin Stands Strong
Spot Bitcoin ETFs, highlighted by Cipolaro as the real standout of this cycle, have shifted from consistent inflows to becoming a “meaningful headwind.” Nevertheless, various factors like global liquidity changes, macroeconomic news, market stress, and user behaviors are still shaping Bitcoin’s journey.
“During market dips, Bitcoin’s dominance tends to rise, as speculative assets unwind quickly and capital consolidates back into the oldest, most liquid asset available. We’ve seen this happen time and again, and it’s happening again,” he shared.
Bitcoin dominance climbed back over 60% in early November, currently settling around 58% as of Monday, according to crypto data platform CoinMarketCap.
Dips in DATs and Stablecoins
Digital Asset Treasuries (DATs) and stablecoins were key players for Bitcoin’s demand. However, Cipolaro pointed out that DAT premiums, which show how shares are performing compared to net asset value (NAV), have decreased significantly across the board, and stablecoin supply has dropped for the first time in months. It looks like investors are pulling back liquidity from the market.
Even if the market continues to trend down, Cipolaro emphasized that the DAT sector still has a ways to go before any real stress becomes a problem.
“While these shifts indicate a move from strong demand to potential headwinds, none of the DATs have shown signs of financial distress yet.”
“Leverage is still at reasonable levels, interest obligations are manageable, and many DAT structures allow issuers to pause payments when necessary,” he added.
Related: Saylor shrugs off suggestion Wall Street ‘hurt’ Bitcoin amid latest crash
Bitcoin’s Long-Term Path Remains Steady
Even with the recent decline, Cipolaro is confident that the “long-term story for Bitcoin is still going strong.” It’s picking up traction among institutions, there’s growing interest from governments, and it continues to play its role as a neutral, programmable monetary asset.
“Recent developments haven’t altered Bitcoin’s long-term trajectory. However, the cyclical narrative driven by flows, leverage, and market behaviors is making a much more pronounced return,” he mentioned.
“Investors should stay optimistic but be ready for challenges. History tells us that the road ahead is likely to be bumpy, emotionally intense, and marked by sudden shifts.”
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