The key drivers of Bitcoin’s rally to a peak in October are now what’s causing its price to drop to multimonth lows, with crypto treasury reversals and crypto fund outflows suggesting “actual capital flight” rather than purely negative sentiment, says NYDIG.
NYDIG head of research Greg Cipolaro said in a note on Friday that exchange-traded fund (ETF) inflows and digital asset treasury (DAT) demand were key to Bitcoin’s (BTC) last cycle.
However, Cipolaro said a major liquidation event in early October saw ETF inflows reverse, treasury premiums collapse and stablecoin supply slip, signalling liquidity leaving the system, in “classic signs,” the loop was “losing momentum.”
“Historically, once that loop breaks, the market tends to follow a predictable sequence. Liquidity tightens, leverage attempts to re-form but struggles to gain traction, and previously supportive narratives stop translating into actual flows.”
“We’ve seen this in every major cycle. The story changes, but the mechanics don’t. The reflexive loop pushes the market up, and its reversal sets the stage for the next phase of the cycle,” Cipolaro added.
ETF capital flowing out, but Bitcoin dominance growing
Spot Bitcoin ETFs, which Cipolaro said have been the standout success story of this cycle, have flipped from a reliable inflow engine “into a meaningful headwind,” but a wider set of factors — such as global liquidity shifts, macro headlines, market structure stress and behavioral dynamics — are still influencing Bitcoin.
“Bitcoin dominance tends to surge during cyclical drawdowns, as speculative assets unwind more aggressively and capital consolidates back into the most established, most liquid asset in the ecosystem. We’ve seen this dynamic repeatedly and we’re seeing it again,” he said.
Bitcoin dominance crept back over 60% in early November and has since settled to around 58% as of Monday, according to crypto data platform CoinMarketCap.
DATs and stablecoins dip
DATs and stablecoins were also a significant source of structural demand for Bitcoin. However, Cipolaro said DAT premiums, where shares traded relative to net asset value, have compressed across the board, and stablecoin supply has dipped for the first time in months, with investors appearing to be withdrawing liquidity from the ecosystem.
Even if the market drawdown deepens, Cipolaro said the DAT sector still has a long runway before actual stress becomes a concern.
“Importantly, while these reversals mark a clear shift from a once-strong demand engine to a potential headwind, no DAT has yet shown signs of financial distress.”
“Leverage remains modest, interest obligations are manageable, and many DAT structures allow issuers to suspend dividend or coupon payments if needed,” he added.
Bitcoin long-term trajectory still intact
Despite the recent pullback, Cipolaro believes the “secular story for Bitcoin remains intact,” as it continues to gain institutional traction, sovereign interest is slowly building, and its role as a neutral, programmable monetary asset remains very much in play.
“Nothing in the past few weeks changes that long-horizon trajectory. But the cycle story, the one driven by flows, leverage, and reflexive behavior, is now asserting itself far more forcefully,” he said.
“Investors should hope for the best, but prepare for the worst. If past cycles are any guide, the path forward is likely to be uneven, emotionally taxing, and punctuated by sudden dislocations.”
