Bitcoin Won 'Wall Street'... and Now Is Paying the Price

SadaNews - It was supposed that Wall Street's embrace of Bitcoin would bring stability. Instead, it created a new vulnerability: dependence on U.S. funds, which have now begun to decline.

Since October 10, about $8.5 billion has exited U.S.-listed spot Bitcoin funds. Exposure to futures on the Chicago Mercantile Exchange has also dropped by about two-thirds from its peak in late 2024 to around $8 billion.

Prices on the Coinbase platform, a favorite among many U.S. institutions, have been trading at a discount compared to the overseas Binance platform, indicating continued American selling. Bitcoin has dropped by more than 40%, even as stocks and precious metals have found buyers.

U.S. Capital Is a Key Support for Bitcoin's Price

This reversal carries unusual weight due to how the market has changed. For most of its history, Bitcoin's price was determined on offshore platforms by retail traders. However, over the past two years, spot funds have pushed billions through U.S. tools, and the Chicago Mercantile Exchange has become the dominant destination for futures, displacing pension funds and hedge funds as individual buyers. U.S. capital, whether from individuals or institutions, has become the marginal price determinant.

When that money was in expansion mode, Bitcoin surged to a record high on October 6. Now it is stumbling, with no clear catalyst to reignite momentum. The original cryptocurrency has seen little change, trading at around $67,500 on Wednesday.

Collapse of the Institutional Investment Thesis and Declining Role of Bitcoin as a Hedge

The core problem is simple: the institutional investment thesis has collapsed. Investors who bought Bitcoin as a hedge against inflation, currency devaluation, or stock market pressures have watched its decline alongside the risks it was supposed to mitigate, and sometimes at a faster pace. Those who treated it as a momentum trade have moved to assets that are actually moving, from global stocks to gold.

The dismantling of that crypto trade has made the market weaker than it appears. David Lawant, head of research at Anchorage Digital, noted that demand for leveraged exposure on the Chicago Mercantile Exchange "has not been this weak since the pre-rush phase of ETFs in mid-2023". A decrease in leverage means fewer forced buyers when prices rise, as well as fewer natural buyers able to absorb waves of selling as they escalate.

Part of the institutional wave was also more mechanical than it seemed. Hedge funds executed basis trades by buying spot Bitcoin and selling futures at a premium to capture the spread as profit. This strategy did not require a directional view on prices, just that the yield exceeded what was available elsewhere.

For most of 2025, that was the case. But when that spread compressed below Treasury yields after October 10, the trade lost its rationale, and those flows stopped. This is one element of the demand picture, even though most of the reversal in ETFs appears driven by a declining appetite for Bitcoin as an asset, rather than the economics of any particular arbitrage strategy.

Bohumil Vosalik, chief investment officer at 319 Capital, stated, "There’s no reason for that capital to remain." He added that until a genuine appetite for immediate demand returns, "every rebound could turn into a sell zone for breakeven rather than a foundation for recovery". The discount on Coinbase, which has been negative for most of 2026, indicates that demand has not yet materialized.

Institutional Market Structure Limits Recovery

The integration of Bitcoin with U.S. finance has brought real advantages, such as deeper liquidity and the institutional legitimacy that the asset long lacked. However, demand is currently declining, and the market has lost its ability to respond to good news.

The deeper problem is structural. Institutionalization has not eliminated volatility but redistributed it. The very products that brought Wall Street into Bitcoin, such as ETFs, yield-generating layers, and options strategies, are designed to smooth yields in stable conditions. They do that, but they also concentrate risks in ways that only become visible when conditions change.

Structured products that generate yields by selling options suppress price fluctuations in calm markets and then exacerbate them when a real catalyst strikes. Moreover, many ETF investors are sitting below their average purchase costs, meaning that rebounds are sold by holders seeking mere breakeven, which limits gains that could have been fed by momentum in previous cycles.

Spencer Halaren, global head of OTC trading at GSR, stated, "The expansion of adopting products like BlackRock's IBIT creates localized stability in Bitcoin when prices are trading within a range." However, he added that when a real catalyst hits, "the structures themselves can actually amplify movement. In particular, yield-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 announced its product linked to Uniswap, the token rose briefly before falling again. In previous cycles, similar headlines would often spark extended bullish waves. Now, enthusiasm fades before it can form.

According to Zach Lindquist, managing partner at Pure Crypto, "The market structure essentially collapsed on October 10... We have never seen this degree of continuity and sharp retracement, even in 2018 and 2022."