Bitcoin won over Wall Street and is now paying the price

Wall Street’s embrace of Bitcoin was supposed to bring stability. Instead, it created a new vulnerability: dependence on American money that is now declining.Since October 10, approximately $8.5 billion has flowed out of US-listed Bitcoin exchange-traded funds. Exposure to futures on the Chicago Mercantile Exchange has fallen by about two-thirds to about $8 billion since its peak in late 2024. Prices on Coinbase, the favored venue of many US institutions, have traded persistently at a discount to offshore exchange Binance – a signal of continued selling in the US. Bitcoin is down more than 40% even as stocks and precious metals have found buyers.

This reversal carries unusual weight because of the way the market changed. For most of its history, Bitcoin’s price was set on offshore exchanges by retail traders. Over the past two years, spot ETFs have funneled billions through US vehicles, the CME has become the dominant platform for futures, and pension funds and hedge funds have displaced individual buyers. US retail and institutional capital became the marginal price setter.As that capital expanded, Bitcoin rose to a record on October 6. Now it’s stagnating – and there’s no clear catalyst to restart it. The native cryptocurrency was little changed at around $67,500 on Wednesday.

The core problem is simple: the institutional thesis broke. Investors who bought Bitcoin as a hedge against inflation, currency depreciation or stock market stress have seen Bitcoin align with — and sometimes outpace — the risks it was designed to offset. Those who treated it as a momentum trade have converted into assets that are effectively moving from global equities to gold.

The unwinding of that crypto trade has made the market thinner than it seems. Demand for borrowed exposure to the CME “hasn’t been this weak since the pre-ETF run-up in mid-2023,” said David Lawant, head of research at Anchorage Digital. Less leverage means fewer forced buyers when prices rise – and fewer natural absorbers when selling structures.

Some of the institutional wave was also more mechanical than it seemed. Hedge funds made basic trades: They bought spot Bitcoin while selling futures contracts at a premium, with the spread captured as returns. The strategy required no visibility into the direction of prices, only that returns were higher than what was available elsewhere. That was the case for most of 2025. When that spread fell below government bond yields after October 10, the trade lost its raison d’être and flows stopped. That represents one element of the demand picture, although most of the ETF’s reversal appears to be driven by declining interest in Bitcoin as an asset, rather than the economics of a single arbitrage strategy.“That capital has no reason to stay,” said Bohumil Vosalik, chief investment officer at 319 Capital. Until real demand returns in the spot market, he added, “any rebound risks becoming a sell-to-even zone rather than a basis for recovery.” The Coinbase premium – negative for most of 2026 – suggests demand has yet to be realized.

Bitcoin’s integration with US finance has brought real benefits: deeper liquidity and the institutional legitimacy that the asset has long lacked. For now, however, the offer has been withdrawn and the market has lost the ability to respond to good news.

The deeper problem is structural. Institutionalization has not eliminated volatility. It reallocated it. The same products that brought Wall Street to Bitcoin – ETFs, yield-generating overlays, options strategies – were designed to facilitate returns under stable conditions. They do. But they also concentrate risks in ways that only become visible when circumstances change.

Structured products that generate returns by selling options suppress price swings in quiet markets and then amplify them when a real catalyst strikes. Many ETF investors are also below their average cost basis, meaning bounces are being sold by holders simply looking to break even, limiting the progress that momentum may have fueled in previous cycles.

“The growing adoption of products like BlackRock’s IBIT is providing local stabilization in Bitcoin when prices are trading within a certain range,” said Spencer Hallarn, global head of OTC trading at GSR. But when a real catalyst hits, “those same structures can actually exaggerate the move. In particular, return-generating products that systematically sell options suppress volatility until they amplify it.”

The result is a market that has lost its ability to respond to good news. When BlackRock Inc. announced a product linked to Uniswap, the token rose briefly before sliding back. In previous cycles, similar headlines often led to longer runs. Now the enthusiasm disappears before it builds up.

“The market structure really collapsed on October 10,” said Zach Lindquist, managing partner at Pure Crypto. “We have never seen such a stable and severe decline, not even in 2018 and 2022.”