Author: Dovey
Nearly six years have passed since "The Long Bull Market from the West," and after two cycles, crypto has finally fulfilled many of the "wish lists" from the past decade. The article described things happening rapidly: investment institutions entered the Bitcoin market, various products linked to TradeFi were fully integrated, Circle went public with great fanfare, and the US president publicly endorsed it and even posted a meme. According to the old script, this should have been the standard opening for a "high-beta bull market." However, what we saw after this round was a collapse in volatility, market catalysts being prematurely triggered, and the industry, which should have been full of "surprises," no longer exciting due to the full financialization and mainstreaming of assets.
At the cross-asset level, even against the backdrop of favorable policies and the release of institutional dividends, BTC significantly underperformed major TradeFi assets such as gold, US stocks, Hong Kong stocks, and A-shares in 2025, and was one of the few assets that failed to reach new highs in sync with global risk assets.
Starting in early 2024 , I analyzed the structural changes in the liquidity supply chain caused by asset mainstreaming from different perspectives on several occasions in English. Let me just pick a few representative examples. CME's BTC OI surpassed Binance's starting in 2024.
The launch of ETFs has provided fertile ground for professional arbitrageurs on Wall Street, resulting in a significant reduction in volatility.
Binance and OKX's efforts to push forward the triparty banking agreement have been fraught with difficulties.
The launch of CME's ETF options and the future launch of Spot will further squeeze the market share of offshore exchanges.
This year, the CBOE and CME began accepting crypto-inkind collat, which will greatly increase collateral mobility.
This year, DTCC will directly connect to several public blockchains, opening up on-chain pathways for stock assets from the source.
When the participant structure and liquidity supply chain of crypto have undergone substantial changes: Who is buying? Who is selling? And who is quietly leaving?
The huge divergence between offshore and onshore funds
To understand the funding structure of this round, we first need to analyze the three key highs of BTC in this cycle:
Phase A (November 2024 – January 2025): Trump's election and improved regulatory expectations triggered FOMO across the onshore and offshore markets, and BTC broke through $100,000 for the first time.
Phase B (April–Mid-August 2025): After a deleveraging correction, BTC surged again, breaking through $120,000 for the first time.
Phase C (early October 2025): BTC recorded its local ATH for this round so far, followed by a 10.10 flash crash, entering a period of adjustment.
From the perspective of combining spot and derivatives, the three stages share several common characteristics:
Spot Market: Onshore is the main buyer, while Offshore is more inclined to reduce holdings on rallies. Coinbase Premium maintained a positive premium in all three peak stages (A/B/C), indicating that the high-level buying mainly came from onshore spot funds represented by Coinbase.
Coinbase BTC Balance continued its downward trend throughout the cycle, reducing the amount of tokens available for sale on the CEX side. In contrast, Binance Balance rose significantly during phases B and C as prices rebounded, corresponding to increased potential selling pressure on the offshore spot market.
Futures: Offshore leverage is active, while onshore institutions continue to reduce positions. Offshore options denominated in BTC (using Binance BTC OI as an example) continued to rise in phases B and C, with leverage ratios increasing. Even after a short-term pullback following the October 10th deleveraging, they quickly recovered to high levels, even reaching new highs. In contrast, onshore futures OIs, represented by CME, have been declining continuously since the beginning of 2025, failing to rebound synchronously when prices reached new highs. Simultaneously, BTC volatility diverged from price, especially when BTC first broke $120,000 in August 2025, while Deribit DVOL was at a relatively low level, implied volatility did not reflect the new high, indicating that the options market was cautious about pricing in trend continuation.
Spot trading reflects portfolio rebalancing across asset classes, and divergent behavior between the two reflects a disagreement on long-term confidence in the assets. CME traders and options traders are the smart money most sensitive to market volatility, possessing an extremely keen sense of smell. The difference in their trading setups and timing is immediately apparent.
An "organization" that's gullible and rich ?
In early 2025, two key policies laid the foundation for the structural entry of onshore buying:
SAB 121 repealed: banks no longer need to include BTC in their liabilities, making it feasible for large custodian banks such as BNY Mellon and JPM to conduct BTC custody business.
FASB fair value accounting takes effect (January 2025): Companies holding BTC will no longer be subject to "impairment only, no gain," but can instead measure it at market fair value. For CFOs, this transforms BTC from a "highly volatile intangible asset" into a "reserve asset option" whose true value can be reflected in financial statements.
These two changes provided an accounting and compliance basis for the subsequent allocation of DAT, corporate treasuries, and some institutional funds. Therefore, we began receiving a large number of funding pitches from new DAT entrants starting in the first quarter of 2025. The core capability of the DAT founding team is singular: fundraising ability. Institutions are not necessarily smarter than retail investors; they simply have lower funding costs and more financial instruments for continuous fundraising. According to Glassnode statistics, the number of BTC held by DAT increased from approximately 197,000 at the beginning of 2023 to approximately 1.08 million at the end of 2025, a net increase of approximately 890,000 BTC over two years. DAT has become one of the most important structured buyers in this round. The operating logic of DAT can be summarized as NAV premium arbitrage:
When the stock price is at a premium to the net value of the crypto assets it holds, the company can raise funds at a high valuation by issuing additional ATMs or convertible bonds.
The funds raised will be used to purchase crypto assets such as BTC, which will increase the value of each share in cryptocurrencies and further support the share price premium.
During a price increase, the higher the premium and the easier the financing, the more motivated companies are to "buy more as the price rises."
Taking MSTR as an example, its large-scale increase in holdings and its largest convertible bond issuance in 2024-2025 were highly concentrated during the period when BTC was strongly rising and approaching or breaking historical highs:
In November-December 2024, when BTC was hitting the $100,000 mark, MSTR completed the largest single issuance in history of $3 billion in 0% convertible bonds.
Subsequently, over 120,000 BTC were purchased at an average cost of over $90,000, which is equivalent to forming a significant structural buying position around $98,000.
Therefore, for DAT, adding to positions at high levels is not chasing the rise, but rather an inevitable result of maintaining the stock price premium and balance sheet structure.
Another frequently misunderstood concept is ETF flow. ETF investor structure has the following characteristics:
Institutional holdings (in the narrow sense of 13F-filer) account for less than a quarter of the total assets under management ( AUM) of ETFs, so non-institutional funds still dominate the overall AUM.
Among institutions, the main types are financial advisors (including wrap accounts and RIAs) and hedge funds: Advisors focus on medium-term asset allocation and have a smooth pace of increasing holdings (passive funds); hedge funds are more price-sensitive and tend to engage in arbitrage and medium-to-high-frequency trading. After Q4 2024, they reduced their holdings overall, which is highly consistent with the downward trend of CME OI (active funds).
A simple breakdown of the ETF's capital structure reveals that institutions are not the main players. These institutions do not balance their own money; asset management and hedge funds are certainly not "diamond hands" in the traditional sense.
As for other types of institutions, they are not any smarter than retail investors. Institutional business models are essentially of two types: earning management fees and earning carry. Our industry's top VC, a top Crypto VC, had a DPI of only 2.4x in 2016 (meaning an investment of $100 in 2014 would yield $2.4 million in 2024). This far underperforms Bitcoin's gains over the past 10 years. Retail investors' advantage is always in following the trend; they can quickly adapt after understanding changes in market structure, without needing path dependence. Most institutional investors die from path dependence and a decline in their ability to iterate, and most exchanges die from misappropriation of user assets and security vulnerabilities.
Absent retail investors
Traffic data from leading centralized exchanges like Binance and Coinbase shows a continuous decline in overall website traffic since the 2021 bull market peak, failing to recover significantly even as Bitcoin reached new highs. This contrasts sharply with the booming popularity of Robinhood. For more details, please read our article from last year. The "wealth effect" in 2025 was more concentrated outside of cryptocurrencies. The S&P 500 (+18%), Nasdaq (+22%), Nikkei (+27%), Hang Seng (+30%), KOSPI (+75%), and even A-shares all rose by nearly 20%, not to mention Gold (+70%) and Silver (+144%). Furthermore, cryptocurrencies were "killed" in this cycle: AI stocks provided a stronger wealth effect narrative, while the 0DTE Zero-Day Options in the US stock market offered an even more casino-like experience than perp, and new retail investors were betting against various macroeconomic and political events in Polymarket and Kalshi.
Furthermore, even South Korean retail investors, known for their high-frequency speculation, withdrew from Upbit in this round and turned to go all in on the KOSPI and US stocks. In 2025, Upbit's average daily trading volume fell by about 80% compared to the same period in 2024, while during the same period, the South Korean stock market's KOSPI index rose by more than 70%-75% for the whole year. Emerging sellers
While Bitcoin's (BTC) movements are increasingly mirroring those of US tech stocks, a significant divergence occurred in August 2025: after reaching its August top following ARKK and NVDA, BTC subsequently fell behind and experienced the 1011 crash, from which it has yet to recover. Coincidentally, at the end of July 2025, Galaxy disclosed in its financial report and press release that it had completed the phased sale of over 80,000 BTC on behalf of an early BTC holder within 7–9 days. These signs all indicate that Crypto Native funds are undergoing massive trading with institutional investors.
With the maturation of BTC wrapper products (such as IBIT), a robust financial infrastructure provides BTC OG whale with the best channel for liquidity exit. OG behavior has evolved from "selling directly at market price on exchanges" to utilizing BTC structured products for exit or asset rotation, entering the broader world of Trade-Fi assets. Galaxy's biggest business growth in 2025 came from facilitating BTC whale' swaps from BTC to iBit. iBit's collateral mobility is far superior to native BTC, and it's secure and easy to store. With the mainstreaming of assets, the high capital utilization rate of paper Bitcoin far exceeds that of real Bitcoin, making it an inevitable path for the financialization of other precious metals.
Miners: From "Paying Electricity Bills" to "Raising CAPEX for AI"
From around the time of the 2024 halving to the end of 2025, there was the most sustained and largest downward cycle in miner reserves since 2021: by the end of 2025, miner reserves were approximately 1.806 million BTC, and the hashrate had fallen by about 15% year-on-year, indicating signs of industry consolidation and structural transformation.
More importantly, the motivation for miners to sell coins in this round has gone beyond the traditional scope of "covering electricity costs":
Within the framework of the so-called "AI escape plan,"
To raise capital expenditures for building an AI data center;
Companies such as Bitfarms, Hut 8, Cipher, and Iren are transforming their existing mining farms into AI/HPC data centers and signing long-term computing power leases for 10–15 years, regarding electricity and land as "golden resources in the AI era."
Riot, which has always adhered to the "long-term holding" strategy, also announced an adjustment to its strategy in April 2025, and began to sell the BTC produced each month.
It is estimated that by the end of 2027, approximately 20% of Bitcoin miners' power capacity will be diverted to running AI.
Financialized paper digital
Bitcoin and the crypto assets it represents are undergoing a slow, inward migration, shifting from value discovery-driven active trading dominated by crypto-native funds to passive allocation and balance sheet management represented by ETFs, DAT, sovereign wealth funds, and long-term funds. Furthermore, the managed positions are often financialized paper Bitcoin. The underlying asset, Bitcoin, is gradually becoming a risky asset component, crammed into various portfolios and bought on a weighted basis. Bitcoin's mainstream adoption is complete, but this comes with the leverage cycle and systemic vulnerabilities similar to those in traditional finance.
In terms of funding structure, incremental buying comes more from passive funds, long-term asset allocation, and corporate/sovereign balance sheet management. Crypto native funds have a diminishing marginal role in price formation and have become net sellers who reduce their positions on rallies for most of the time.
The correlation between asset attributes and US stocks (especially high-beta technology and AI themes) has significantly increased, but due to the lack of a valuation system, it has become an amplifier of macro liquidity.
In terms of credit risk, cryptocurrencies have become increasingly financialized through proxies such as DAT stocks, spot ETFs, and structured products, significantly improving asset circulation efficiency. However, this also exposes them to greater risks from DAT unwinding, collateral discounting, and cross-market credit runs.
Where is the road ahead?
Under the new liquidity structure, the traditional narrative of "halving every four years = a complete cycle" is no longer sufficient to explain BTC's price behavior. The dominant variables in the coming years will come more from two axes.
Vertical axis: Macro liquidity and credit environment (interest rates, fiscal policy, AI investment cycle);
Horizontal axis: Premiums and valuation levels of DAT, ETFs, and related BTC proxies.
In these four quadrants:
Easing monetary policy + high premiums : a high FOMO phase, similar to the environment at the end of 2024 to the beginning of 2025;
Easing monetary policy + discount : The macro environment is relatively favorable, but the DAT/ETF premium is squeezed out, making it suitable for crypto native funds to carry out structural reconstruction;
Tightening + High Premium : Highest risk, DAT and related leverage structures are most prone to sharp unwinding;
Contraction + Discount : A true cycle reset.
In 2026, we will gradually move from the right-hand side to the left-hand side, getting closer to the "loose + discount" or "slightly loose + discount" range in our framework. At the same time, several key institutional and market variables will emerge in 2026:
The SFT Clearing Service and DTCC 24/7 tokenization have been implemented, further financializing Bitcoin and making it part of Wall Street's basic collateral. The liquidity gap caused by time differences has been smoothed out, and while the liquidity has increased, the leverage limit and systemic risk have also increased.
AI trading is entering a "high-expectation consumption period" : In the second half of 2025, signs emerged that AI leaders were "continuing to deliver excellent performance but their stock prices were showing signs of sluggishness," meaning that simply exceeding expectations no longer corresponds to linear price increases. Whether BTC, as a high-beta technology factor, can continue to ride the wave of AI capital expenditure and upward profit revisions will be tested in 2026.
BTC is further decoupling from the alt market : BTC is connected to ETF flows, DAT balance sheets, sovereign and long-term funds; while alt is connected to a smaller pool of funds with a higher risk appetite; for many institutions, reducing their BTC holdings is more likely to mean returning to better-performing traditional assets, rather than "shifting from BTC to alt".
Does price matter? Absolutely. Bitcoin's surpassing $100,000 mark has already propelled this young asset, only 17 years old, into a national strategic reserve. Beyond price, the next stage of development for crypto assets remains long. As I wrote in 2018 when Primitive was founded, in my article "Hello, Primitive Ventures"...
What was said in the article “In our exploration of the crypto industry over the past few years, we have witnessed the immense power of distributed consensus reached among individuals, and the characteristic of information ‘continuously dissipating’ gives crypto assets tremendous vitality. It is precisely from individuals’ most fundamental desire for freedom and equality, as well as for certainty in assets and data, that we have seen the possibility of ‘entropy increasing forever, crypto immortality’.”
When capital markets and cultural trends intertwine, they can unleash economic and production relations reforms that are more powerful than the cultural trends themselves. Cryptocurrency, representing populist finance, is a prime example of this intertwining of capital markets and cultural trends.
If, in the next few years, we see Crypto Rail, as the only supranational and global liquidity infrastructure, generate a large amount of stagnant cash flow, users, and balance sheet applications, allowing some of the gains from ETFs/DAT to flow back onto the blockchain and transforming passive allocation into active use, then everything we're talking about today won't be the end of a cycle, but rather the starting point of the next round of true adoption. From "Code is the law" to "Code is eating the bank," we've already traversed the most difficult 15 years.
The onset of a revolution signifies the decline of old beliefs. The veneration of Rome transformed Roman civilization's dominance of the world into a "self-fulfilling prophecy." The birth of new gods may be random, but the twilight of the old gods is already predetermined.
As an aside: This article is an in-depth recap of my previous post, "The Long-Term Bull Market from the West," written six years ago. Thank you to everyone who has been with me since 2017, or even earlier. Together, we've witnessed Bitcoin's evolution from narrative to sovereignty, from the margins to the mainstream, and we've experienced the convictions that can only be truly understood through firsthand experience.
Thanks also to my team at Primitive Ventures. This article was co-authored by me and our hardcore researcher Ada, who is known for her shrewdness and few words.
