Wall Street's embrace of Bitcoin was supposed to bring stability. But instead, it created a new vulnerability: reliance on American money, which is now beginning to decline.
Since October 10, approximately $8.5 billion has flowed out of US-listed spot Bitcoin exchange-traded funds (ETFs). Exposure to futures contracts on the Chicago Board of Trade (CBOT) has also declined by about two-thirds from its peak in late 2024 to roughly $8 billion.
Prices on Coinbase, the preferred platform for many US institutions, continued to trade at a discount compared to the offshore Binance platform, indicating ongoing US selling. Bitcoin fell by more than 40% even as stocks and precious metals found buyers.
US capital is a key support for the price of Bitcoin.
This reversal carries unusual weight because of how the market has changed. For most of its history, Bitcoin's price was determined on external platforms by retail traders. Over the past two years, spot exchange-traded funds (ETFs) have poured billions of dollars into US-based instruments, the Chicago Mercantile Exchange (CME) has become the dominant destination for futures contracts, and pension funds and hedge funds have displaced individual buyers. US capital, both from individuals and institutions, has become the marginal determinant of price.
When this money was expanding, Bitcoin surged to a record high on October 6. Now it's stalling, and there's no clear catalyst to reignite the momentum. The original cryptocurrency showed little change, trading at around $67,500 on Wednesday.
The collapse of the institutional investment thesis and the decline of Bitcoin's role as a hedge
The fundamental 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 seen it plummet along with the very risks it was supposed to offset, sometimes at an even faster pace. Those who viewed it as a momentum trade have moved on to assets that actually move, from global stocks to gold.
The unraveling of that cryptocurrency deal has left the market weaker than it appears. David Lawant, head of research at Anchorage Digital, said that demand for leveraged exposure on the Chicago Mercantile Exchange hasn't been this weak since before the mid-2023 ETF boom. Lower leverage means fewer forced buyers when prices rise, and fewer natural buyers able to absorb sell-offs when they intensify.
Part of the institutional wave was also more mechanical than it appeared. Hedge funds were executing base trades, buying spot Bitcoin and selling futures contracts at a premium, to capture the difference as a return. This strategy didn't require an opinion on the price direction, only that the return exceed what was available elsewhere.
This was achieved for most of 2025. But when that spread narrowed below Treasury yields after October 10, the deal lost its rationale and those flows ceased. This is just one element of the demand picture, although most of the reversal in ETFs appears to be driven by a decline in appetite for Bitcoin as an asset, rather than the economics of any particular arbitrage strategy.
Bohumil Vosalek, chief investment officer at 319 Capital, said: “There’s no reason for that capital to remain.” He added that until a genuine appetite for spot demand returns, every bounce could turn into a sell-off rather than a foundation for recovery. The Coinbase discount, which was negative for most of 2026, suggests that demand has yet to materialize.
The institutional market structure limits recovery
The integration of Bitcoin with US finance has brought real benefits, such as greater liquidity and institutional legitimacy that the asset has long lacked. But currently, demand is waning, and the market has lost its ability to respond to positive news.
The deeper problem, however, is structural. Institutionalization hasn't eliminated volatility; it's merely redistributed it. The very products that brought Wall Street into Bitcoin—such as exchange-traded funds (ETFs), yield-generating tiers, and options strategies—were designed to smooth out returns under stable conditions. And they do. But they also concentrate risk in ways that only become apparent when conditions change.
Structured products that generate returns through option trading dampen price volatility in calm markets, then amplify it when a real catalyst strikes. Furthermore, many ETF investors are sitting below their average purchase cost, meaning that retracements are being sold by holders simply seeking breakeven, thus limiting gains that, in previous cycles, could have been fueled by momentum.
Spencer Hallarn, global head of over-the-counter trading at GSR, said that the increased adoption of 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 strikes, those same structures can actually amplify the move. In particular, yield-generating products that systematically sell options suppress volatility until they inflate it.
The result is a market that has lost its ability to respond to good news. When BlackRock announced a product linked to its Uniswap platform, the token briefly rose before falling again. In previous cycles, similar headlines often triggered sustained upward waves. Now, the enthusiasm fades before it even forms.
According to Zach Lindquist, managing partner at Pure Crypto, the market structure effectively collapsed on October 10th. We have never seen such continuity and severity of decline, not even in 2018 and 2022.
