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Navigating Web3 tides with focused insightsAuthor:
"The Open Bull Run from the West" was published nearly six years ago. After two cycles, crypto has finally fulfilled many of the "wishlist" items from the past decade—the predictions in that article are rapidly coming true: institutional investors are actively allocating to Bitcoin, products linking crypto with TradFi have been fully established, Circle has gone public in a high-profile manner, and even the U.S. President has publicly endorsed it and personally posted memes. According to traditional scripts, this should be the standard beginning of a "high-beta bull market." Yet this cycle ended with collapsing volatility, catalytic events being front-run, and an industry once filled with surprises losing its excitement as assets become increasingly financialized and mainstream.
On a cross-asset level, despite favorable policies and institutional tailwinds, BTC notably underperformed major TradFi assets such as gold, U.S. equities, Hong Kong stocks, and A-shares in 2025—making it one of the few assets failing to reach new highs alongside global risk assets.
Starting early 2024, I repeatedly discussed on my English X account @DoveyWan, from various angles, the structural changes in the liquidity supply chain following crypto’s mainstream adoption. Let me highlight several representative developments:
- CME's BTC open interest (OI) surpassed Binance starting in 2024;
- The launch of ETFs provided ideal conditions for Wall Street professional arbitrageurs, leading to significantly compressed volatility;
- Tri-party banking agreements pursued by Binance and OKX have struggled to gain traction;
- The upcoming CME ETF options and potential spot listings will further squeeze offshore exchanges’ market share;
- CBOE and CME began accepting crypto in-kind collateral in 2025, greatly enhancing collateral mobility;
- DTCC is set to directly connect with several public blockchains in 2025, opening on-chain pathways for stock assets at the source.
When the participant structure and liquidity supply chain of crypto have undergone substantial transformation: Who is buying? Who is selling? And who is quietly exiting?
Massive Divergence Between Offshore and Onshore Capital
To understand the capital structure of this cycle, we must first break down BTC’s three key peaks:
Phase A (November 2024 – January 2025): Trump’s election victory and improved regulatory expectations triggered FOMO across both onshore and offshore markets, pushing BTC above $100,000 for the first time.
Phase B (April 2025 – mid-August): After deleveraging and correction, BTC rallied again, breaking $120,000 for the first time.
Phase C (early October 2025): BTC reached the current local all-time high (ATH), followed shortly by the October 10 flash crash and subsequent consolidation period.
Analyzing spot and derivatives data reveals common characteristics across these phases:
Spot Market: Onshore players were the primary buyers, while offshore participants tended to sell into strength. Coinbase Premium remained positive during each peak phase (A/B/C), indicating that demand at higher prices came mainly from onshore spot funds represented by Coinbase.
Coinbase BTC balances declined steadily throughout the cycle, reducing available sell-side liquidity on centralized exchanges (CEX). In contrast, Binance balances rose significantly during Phases B and C as prices rebounded, signaling growing potential selling pressure from offshore spot holders.
- Futures Market: Offshore leverage remained active, while onshore institutions consistently reduced positions. Offshore OI denominated in BTC (e.g., Binance BTC OI) continued rising through Phases B and C, showing increasing leverage. Even after the October 10 liquidation event caused a short-term drop, OI quickly recovered—and even hit new highs. Conversely, onshore futures OI represented by CME showed a steady decline since early 2025, failing to rise in tandem with price. Meanwhile, BTC volatility diverged from price action—especially when BTC first breached $120,000 in August 2025, Deribit DVOL was near its lows, suggesting options markets priced no premium for trend continuation and exhibited cautious sentiment.
The spot market reflects large-scale asset reallocation behavior, and the divergence between onshore and offshore actions reflects differing long-term confidence in the asset. The CME crowd and options traders—most sensitive to blood in the water—are highly intelligent money with sharp instincts. Their trading setups and timing clearly demonstrate superior judgment.
"Dumb Money" Institutions?
Two key policy shifts at the beginning of 2025 laid the foundation for structural onshore buying:
- Repeal of SAB 121: Banks can now custody BTC without counting it equally as a liability, enabling institutions like BNY Mellon and JPMorgan to offer BTC custodial services;
- Effective implementation of FASB fair value accounting (January 2025): Companies holding BTC can now reflect gains at market value rather than only recording impairments. For CFOs, this transformed BTC from a “highly volatile intangible asset” into a viable “reserve asset option” visible on balance sheets.
These changes created the accounting and compliance prerequisites for DATs, corporate treasuries, and certain institutional allocations. Consequently, starting Q1 2025, we began receiving numerous funding pitches from newly entering DAT players. The core competency of DAT founding teams is singular: fundraising ability. These so-called institutions aren't smarter than retail—they simply enjoy lower cost of capital and access to more financial tools for continuous fundraising. According to Glassnode data, BTC holdings by DAT companies increased from approximately 197,000 BTC in early 2023 to around 1.08 million BTC by end-2025—an addition of roughly 890,000 BTC over two years. DATs have thus become one of the most important structural buyers in this cycle. The operational logic of DATs centers on NAV premium arbitrage:
- When stock price trades at a premium to the net asset value (NAV) of its crypto holdings, companies issue shares via ATM or convertible bonds at elevated valuations;
- Raised capital is used to purchase BTC or other digital assets, increasing per-share crypto exposure and reinforcing the valuation premium;
- During upswings, greater premiums enable easier financing, incentivizing companies to “buy more as prices rise.”
Take MSTR as an example: its largest BTC accumulation coincided precisely with periods of strong upward momentum and record-high BTC prices during 2024–2025:
- In November–December 2024, as BTC approached $100,000, MSTR issued a historic $3 billion zero-coupon convertible bond—the largest single issuance ever;
- It then purchased over 120,000 BTC at an average cost exceeding $90,000, creating a significant structural bid near $98,000.
Therefore, for DATs, buying at elevated levels isn’t chasing momentum—it's a necessary outcome of maintaining share price premium and balance sheet integrity.
Another commonly misunderstood element is ETF flows. ETF investor composition shows the following traits:
- Institutional holders (narrowly defined as 13F filers) account for less than a quarter of total holdings, meaning ETF AUM remains predominantly non-institutional;
- Among institutions, main types include financial advisors (covering wrap accounts and RIAs) and hedge funds: Advisors focus on medium-term asset allocation with smooth, consistent buying patterns (passive capital); Hedge funds are more price-sensitive, favoring arbitrage and medium-to-high frequency trading. They’ve been overall net sellers since Q4 2024—a trend closely aligned with declining CME OI (active capital).
Breaking down ETF ownership reveals institutions aren’t the dominant force. These institutions don’t deploy their own balance sheet capital—fiduciary managers and hedge funds certainly don’t qualify as traditional “diamond hands.”
Other institutional types aren’t smarter either. Institutional business models boil down to two revenue streams: management fees and carried interest. Consider a top-tier VC in our space—its 2016 vintage fund achieved a DPI of just 2.4x (i.e., $100 invested in 2014 yielded $240,000 by 2024), far underperforming Bitcoin’s 10-year return. Retail investors retain the advantage of riding trends and swiftly pivoting post-structural shifts, unburdened by path dependency. Most institutional investors die from path dependence and failure to self-evolve; most exchanges fail due to user fund misuse and security flaws.
Absent Retail Investors
Traffic data from major CEXs like Binance and Coinbase show a clear picture: overall visitation has declined continuously since the 2021 bull market peak, with no meaningful recovery even as BTC hits new highs—starkly contrasting with the explosive popularity of platforms like Robinhood. For deeper analysis, see our previous thread titled “Where Are the Marginal Buyers?”
Binance Traffic
Coinbase Traffic
In 2025, the “wealth effect” was concentrated outside crypto: S&P 500 (+18%), Nasdaq (+22%), Nikkei (+27%), Hang Seng (+30%), KOSPI (+75%), and even A-shares (~+20%) delivered solid returns—not to mention gold (+70%) and silver (+144%). Crypto faced additional headwinds: AI-related stocks offered stronger wealth narratives, while 0DTE (Zero-Day-To-Expiration) options in U.S. equities provided an even more casino-like experience than perpetual futures. Many new retail speculators turned instead to Polymarket and Kalshi to bet on macroeconomic and political events.
Even South Korea’s famously hyperactive retail traders withdrew from Upbit and shifted capital toward KOSPI and U.S. stocks. In 2025, Upbit’s daily average trading volume dropped ~80% year-on-year, while KOSPI surged over 70–75% annually. South Korean retail net purchases of U.S. stocks reached a record $31 billion.
Emerging Sellers
As BTC increasingly moves in sync with U.S. tech equities, a notable decoupling emerged in August 2025: BTC followed ARKK and NVDA to their August peaks but then lagged behind, culminating in the October 11 crash from which it has yet to recover. Coincidentally, in late July 2025, Galaxy disclosed in its earnings report and press release that it had facilitated the staggered sale of over 80,000 BTC on behalf of an early BTC holder within 7–9 days. These signs collectively indicate massive handover activity between native crypto capital and institutional players.
With maturing BTC wrapper products (like IBIT), sophisticated financial infrastructure now offers OG whales optimal exit routes. Whale behavior has evolved from “selling directly on exchanges at market price” to utilizing structured BTC products for exits or asset rotation into broader TradFi asset classes. Galaxy’s biggest business growth in 2025 came from helping BTC whales swap native BTC into iBit. iBit’s collateral mobility far exceeds that of native BTC, offering better security and custody. As assets go mainstream, paper BTC’s superior capital efficiency over physical BTC mirrors the inevitable financialization path seen in other precious metals.
Miners: From Paying Electricity Bills to Raising CAPEX for AI
From the 2024 halving through end-2025 marked the longest and deepest drawdown in miner reserves since 2021: By end-2025, miner-held BTC stood at approximately 1.806 million BTC, with hash rate down ~15% YoY—indicating industry cleansing and structural transformation.
More importantly, miners’ motivations for selling BTC have expanded beyond merely covering electricity costs:
- Under the so-called “AI escape plan,” some mining firms transferred BTC worth ~$5.6 billion to exchanges to raise capital expenditures for building AI data centers;
- Companies like Bitfarms, Hut 8, Cipher, and Iren are repurposing existing mining facilities into AI/HPC data centers, signing 10–15 year long-term compute leases and treating power and land as “golden resources in the AI era”;
- Riot, previously known for its “long-term hodling” strategy, announced in April 2025 a strategic shift to begin selling its monthly BTC production;
- Estimates suggest that by end-2027, about 20% of Bitcoin miners’ power capacity will be redirected toward running AI workloads.
Financialized Paper Bitcoin
Bitcoin and its associated digital assets are undergoing a slow, internal-to-external migration—from crypto-native-led, active value discovery trading toward passive allocation and balance sheet management led by ETFs, DATs, sovereign, and long-term capital. Moreover, managed positions are often held in the form of financialized “paper bitcoin.” Underlying BTC is gradually becoming a standardized risk asset component slotted into diversified portfolios and bought based on weightings. Bitcoin’s mainstreaming process is complete—but brings with it systemic leverage cycles and fragilities akin to traditional finance.
- At the capital structure level, incremental buying pressure comes increasingly from passive funds, long-term asset allocators, and corporate/sovereign balance sheet managers. Native crypto capital plays a diminishing marginal role in price formation and acts mostly as a net seller during rallies.
- At the asset attribute level, correlation with U.S. equities—particularly high-beta tech and AI themes—has strengthened significantly. Lacking intrinsic valuation models, BTC functions primarily as an amplifier of macro liquidity.
- At the credit risk level, through proxies like DAT stocks, spot ETFs, and structured products, cryptocurrencies have become deeply financialized. Asset transfer efficiency has improved markedly, but exposure to risks—including DAT unwinds, collateral haircuts, and cross-market credit crunches—has also grown substantially.
Where Do We Go From Here?
Under the new liquidity regime, the traditional narrative of “four-year halving equals one full cycle” no longer sufficiently explains BTC’s price dynamics. The dominant drivers over the coming years will stem from two axes:
- Vertical axis: Macro liquidity and credit environment (interest rates, fiscal policy, AI investment cycle);
- Horizontal axis: Premiums and valuation levels of DATs, ETFs, and related BTC proxies.
Across these four quadrants:
- Loose + High Premium: High-FOMO phase, similar to late 2024–early 2025;
- Loose + Discount: Macro conditions relatively friendly, but DAT/ETF premiums have collapsed—ideal for native crypto capital to rebuild structurally;
- Tight + High Premium: Highest risk phase, where DATs and leveraged structures are most vulnerable to violent unwinding;
- Tight + Discount: True cycle reset.
In 2026, we will transition gradually from the right side to the left side of this matrix—moving closer to either “loose + discount” or “slightly loose + discount.” Additionally, 2026 will bring several critical institutional and market variables:
- SFT Clearing Service and DTCC 24/7 tokenization go live: Bitcoin will be further financialized, becoming part of Wall Street’s foundational collateral stack. Time-zone-induced liquidity gaps will vanish, deepening liquidity—but also raising leverage ceilings and systemic risk.
- AI trading enters the “high-expectation burnout phase”: Since second half 2025, signs have emerged that even stellar AI leaders see muted stock reactions despite strong results. Simply beating expectations no longer guarantees linear price gains. Whether BTC, as a high-beta tech proxy, can continue riding the wave of AI capex and earnings upgrades will be tested in 2026.
- BTC and altcoins decouple further: BTC connects with ETF flows, DAT balance sheets, sovereign, and long-term capital; alts attract niche, higher-risk-tolerance pools. For most institutions, reducing BTC exposure likely means rotating back into better-performing traditional assets—not switching into alts.
Is price important? Of course. Bitcoin crossing $100,000 has cemented this 17-year-old asset as a national-level strategic reserve. Beyond price, however, crypto’s next journey remains long. As I wrote in 2018 upon founding Primitive Ventures in “Hello, Primitive Ventures”:
“Through our exploration of crypto over recent years, we’ve witnessed the immense power of distributed consensus among individuals, and how information tends to 'persistently disperse.' This gives crypto assets extraordinary resilience. It is precisely individuals’ fundamental desire for freedom, equality, and certainty over assets and data that makes ‘entropy always increases, yet crypto lives forever’ a plausible reality.”
When capital markets and cultural movements converge, they unleash economic and productive forces stronger than ideology alone. Crypto-based populist finance is the quintessential product of such convergence—capital markets meeting cultural currents.
If in the coming years we witness crypto rails emerging as the sole globally scalable, permissionless liquidity infrastructure—generating applications with real cash flows, users, and on-chain balance sheets—and if some of the gains from ETFs/DATs flow back onto the chain, transforming passive holdings into active usage, then everything we discuss today won’t mark the end of a cycle, but rather the beginning of true adoption. From “Code is Law” to “Code is Eating the Bank,” we’ve already passed through the hardest first 15 years.
The beginning of a revolution signals the decay of old beliefs. The worship of Rome made Roman civilization’s dominance a self-fulfilling prophecy. The birth of new gods may seem random, but the twilight of the old ones is already foretold.
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