Market Reset Demand Not

GM Anon!

It’s been a heavy period for crypto. Nearly every meaningful metric has turned deeply negative, shaking trader confidence and leaving many in the market disillusioned. Historically, however, this type of environment has created some of the best opportunities for long term buyers.

Today’s issue is a little different. First, we’ll take a deep look at the current state of the market across key metrics. Then we’ll break down what risks current conditions may pose to corporate treasuries. Let’s dive in!

TLDR

• BTC is stabilizing near $69K after a leverage driven selloff, with the bounce reflecting seller exhaustion rather than renewed demand

• The market has shifted from liquidation to stabilization, but overall confidence and conviction remain low

• BTC spot ETFs recorded a recent $545M single day outflow, with flows inconsistent and still leaning toward distribution

• ETH ETFs saw roughly $79M in net outflows, reinforcing cautious institutional positioning across core assets

• Open interest has declined to around $21.6B, confirming ongoing deleveraging rather than new risk being added

• Funding has turned negative after repeated long squeezes, reducing long side fragility but creating early short crowding conditions

• Supply in profit has fallen sharply, leaving a large portion of circulating BTC underwater and reflecting broad valuation compression

• Holder behavior shows redistribution, with mid sized holders selling into weakness while 1,000+ BTC addresses continue to accumulate

• Retail participation has increased on dips, a pattern that typically aligns with extended consolidation rather than immediate recovery

• Macro conditions remain the primary constraint, with tighter financial conditions and no policy easing keeping rallies tactical rather than structural

State Of The Market

BTC ends the week near $68K after a sharp liquidation driven decline that forced leverage out of the system and pushed the market into a high stress adjustment phase. Since then, price is attempting to stabilize, but the recovery reflects exhaustion of sellers more than the return of meaningful demand.

Across spot, derivatives, and on chain activity, the same theme is emerging. Risk has been reduced, but confidence has not yet returned. Institutional flows remain inconsistent, liquidity conditions are tightening, and positioning continues to adjust unevenly.

At the same time, valuation has compressed significantly and ownership is gradually shifting toward stronger hands. The market is no longer in a cascade, but it is operating without a clear source of sustained buying. For now, the environment is best understood as stabilization under liquidity pressure rather than the start of a new trend.

ETF Flows

Institutional behavior through ETF flows continues to reflect caution rather than accumulation.

During the week, BTC spot ETFs recorded a large single day outflow of approximately $545M, one of the largest redemptions seen during the current drawdown. While there were isolated inflow sessions, they lacked follow through and were quickly reversed. This pattern suggests tactical dip buying rather than a shift in institutional risk appetite.

The broader message from flows is consistent. Larger allocators are still reducing exposure into strength rather than defending price at lower levels. Historically, durable market lows have coincided with sustained inflows over multiple sessions. That type of demand has not yet appeared.

ETH ETFs also faced net outflows of roughly $79M, reinforcing the cautious stance across core crypto exposure. There is little evidence of rotation within the asset class, and higher beta assets continue to see limited institutional interest.

Until ETF flows stabilize and turn consistently positive, spot demand is unlikely to provide a durable foundation for price.

Derivatives and Positioning

The recent move lower was primarily a leverage event, and derivatives data shows the market is still working through its aftermath.

Open interest has declined steadily, falling toward roughly $21.6B. This confirms that risk is being removed rather than rebuilt. The pace of the decline has slowed, suggesting the most aggressive forced liquidations have passed, but positioning has not yet transitioned into a clear re-accumulation phase.

Funding behavior highlights the uneven adjustment. During much of the decline, funding repeatedly moved back into positive territory even as price fell. This indicates that traders continued to attempt early longs, creating a persistent imbalance that kept downside pressure active as those positions were forced out.

More recently, funding has shifted negative across several venues, suggesting the crowded long positioning has finally been flushed. This reduces immediate downside fragility but introduces early short crowding conditions. In this environment, upside moves are more likely to come from short covering than from new risk taking.

Liquidation dynamics reinforce the fragile structure. Price continues to move toward visible liquidity, and with liquidation levels still appearing below spot, the path of least resistance remains sensitive to further downside extensions if demand does not improve.

Overall, derivatives positioning has moved from crowded long stress toward early reset, but balance and conviction have not yet returned.

On Chain and Holder Behavior

On chain activity reflects a market in transition, where long term structure is improving but near term behavior remains fragile.

Supply in profit has fallen sharply, leaving a large portion of circulating BTC underwater. This type of profit compression is typical of late stage stress and valuation reset rather than immediate turning points.

Holder behavior suggests redistribution rather than broad capitulation. Mid sized holders have been net sellers into weakness, while addresses holding 1,000+ BTC continue to accumulate quietly. At the same time, retail participation has increased on dips, a pattern that historically aligns with extended basing rather than rapid recovery.

Institutional behavior has also leaned defensive. The Coinbase Premium has remained deeply negative at times, indicating that selling pressure has been led by U.S. based investors rather than retail.

Network fundamentals reinforce the softer demand backdrop. Network growth has fallen to multi year lows, and recent spikes in activity appear to be driven by selling rather than new adoption.

Liquidity conditions on chain are also tightening. Stablecoin supply growth has stalled and begun to contract, removing an important source of marginal buying power that supported previous advances.

Despite the weak near term picture, valuation metrics such as MVRV and the Bitcoin Yardstick now sit in historically compressed ranges. These conditions have historically aligned with late cycle stress and improving long term opportunity, even though they do not signal immediate recovery.

Macro and Liquidity Context

The broader macro environment continues to act as the primary constraint on risk assets.

U.S. ISM Manufacturing surprised sharply to the upside at 52.6, a 40 month high and the first expansionary reading in a year. Under normal conditions, stronger growth would support risk assets. In the current cycle, where liquidity expectations dominate, the effect is the opposite. Stronger growth reduces the likelihood of near term rate cuts, tightening financial conditions at a time when markets are already sensitive to liquidity.

At the same time, underlying economic data is weakening beneath the surface. January job cuts rose to 108K, the highest level for a January since the Global Financial Crisis. Hiring plans collapsed to the lowest level on record, and job openings have fallen to their lowest level since 2020. Part time employment for economic reasons has moved toward recessionary levels, indicating growing labor market stress.

Risk assets are already reflecting late cycle conditions. U.S. software equities have fallen close to 30% in a matter of weeks, and institutional investors have been aggressively reducing exposure across sectors. Housing data shows demand exhaustion, while the yield curve has steepened as growth concerns increase.

Globally, sovereign bond markets are also showing signs of strain, adding to broader financial instability.

The macro regime is increasingly defined by slowing growth, fading inflation, tightening financial conditions, and narrowing policy flexibility. In this environment, liquidity rather than growth is the dominant driver, and the absence of easing continues to limit sustained risk appetite.

Net Result

The market has transitioned from liquidation toward stabilization, but the recovery remains fragile.

Leverage has been reduced and valuation has compressed into historically attractive territory, yet the key drivers of a durable turn are still missing. ETF flows remain inconsistent, stablecoin liquidity is no longer expanding, and institutional behavior continues to lean defensive.

Ownership is gradually shifting from weaker hands to stronger balance sheets, but the redistribution process is not complete. Retail participation remains early, while larger allocators have not yet returned with sustained demand.

Macro conditions remain the central variable. Stronger growth without policy easing is tightening financial conditions rather than supporting risk assets. Until liquidity expectations improve, rallies are likely to be tactical and positioning driven rather than structural.

This is not a structural breakdown for BTC. It is a transition phase marked by compressed valuations, reduced leverage, and low conviction. The market is stabilizing, but a durable trend higher will require consistent institutional inflows and a clear improvement in the broader liquidity environment.

Corporate Treasury Stress: Strategy and Bitmine

The recent drawdown has brought increased attention to corporate balance sheets with concentrated crypto exposure. The key risk for these firms is often framed around liquidation, but the more relevant pressure is strategic. Price declines alone do not force selling. The real constraint emerges over time as weaker markets reduce flexibility, capital access, and investor tolerance.

Strategy

Strategy holds 713,502 BTC acquired at a total cost of $54.3B, or approximately $76K per BTC. With BTC trading meaningfully below that level, the company reported a quarterly loss of $12.4B tied to the mark to market decline in its holdings.

Despite the size of the loss, the balance sheet structure limits near term financial risk. The BTC is unencumbered and not pledged as collateral, and the company’s convertible debt is long dated with no immediate maturity pressure. There are no price triggered mechanisms that would force asset sales.

The constraint is therefore strategic rather than structural. As Strategy’s equity trades closer to the value of its underlying BTC, issuing new shares to fund additional purchases becomes more dilutive and less attractive. This slows the pace of accumulation and reduces the company’s ability to expand its position during periods of weakness.

If BTC remains below the firm’s cost basis for an extended period, the primary risk shifts toward increased shareholder scrutiny and tighter capital conditions. The strategy itself remains intact, but its growth engine becomes less efficient.

Bitmine

Bitmine represents a more sensitive exposure profile due to the scale and timing of its ETH accumulation.

The company holds approximately 4.29M ETH acquired at an estimated cost of $16.4B. At current prices near $2K to $2.3K, the position is valued around $8.4B, leaving roughly $8B in unrealized losses.

Much of the position was accumulated at an average price between $3.8K and $3.9K, meaning the firm is deeply underwater following ETH’s roughly 53% decline from its cycle high.

Importantly, Bitmine also faces no immediate forced selling risk. The ETH purchases were funded primarily through equity rather than debt, there are no restrictive covenants, and the company holds roughly $538M in cash. In addition, more than 2.9M ETH is staked, generating recurring income that partially offsets operating pressure.

However, the economic exposure is highly sensitive to price and sentiment. The scale of the unrealized loss increases equity volatility and raises the importance of market confidence, particularly given the firm’s stated objective of accumulating a significant share of total ETH supply.

What Matters

The common factor across both firms is timing rather than leverage.

The recent decline was driven by a rapid, liquidity driven repricing that compressed asset values faster than corporate balance sheets could adjust. Neither Strategy nor Bitmine faces forced liquidation based on price alone.

The risk emerges if weak market conditions persist.

Prolonged trading below cost levels would gradually increase pressure from shareholders, reduce capital raising flexibility, and narrow strategic options. For Strategy, this would likely further limit its ability to fund new BTC purchases efficiently. For Bitmine, extended weakness in ETH would amplify equity volatility and intensify questions around capital allocation, especially if staking income remains insufficient relative to mark to market losses.

That wraps up this post—we hope you found the insights valuable. See you next week, anon! 🚀