Macro update

Last week was brutal. BTC broke below $80k for the first time since April 2025 and kept going, eventually hitting $60k before bouncing back to the low $70s into the weekend. All the gains since Trump's election in November 2024, gone. Over $2.7B in liquidations as leverage that had been building during two months of range trading finally washed through. IBIT alone traded over $10B in notional on Thursday, a reminder of how central these products have become to price action.

This wasn't a slow bleed. Three things hit at once. Warsh's nomination as Fed Chair on January 30th, Mag 7 earnings disappointing with Microsoft down 10%, and the historic precious metals blowoff where silver lost 40% in three days after hitting $121. The market took a few days to process all of it before deciding the answer was broad risk-off. Crypto took the worst of it. BTC fell 50% from its October ATH of $126k in four months, a drawdown we haven't seen since 2022.

Who Was Selling

Spot flows tell part of the story. Coinbase premium stayed in discount through the entire move, a pattern that's held since December, pointing to structural US selling pressure. Our internal OTC flow data confirms it with US counterparties heavy sellers all week, amplified by continued ETF redemptions. The institutional bid that used to provide momentum (ETFs, corporate treasuries, outright spot demand) has dried up.

Since November, the spot BTC ETF complex has shed roughly $6.2B in cumulative net outflows, the longest sustained streak since launch. When redemptions of that size force sponsors to sell spot into a falling tape, the feedback loop writes itself: selling pushes price lower, lower prices trigger more risk-management selling, and IBIT sits in the middle as both the largest holder and the largest source of incremental supply.

On the derivatives side, IBIT and Deribit now represent roughly half the crypto options market. The washout suggests a pocket of investors became complacent in the light of continued range trading and compressed realised volatility that suddenly caught them offguard.

AI Sucking the Air Out

A chart that went viral last week shows Bitcoin's performance tracking software names in the S&P almost perfectly. Most people read this as crypto trading like software. But the real story is AI has been absorbing a lot of available capital for months, at the expense of everything else.

We’ve been focusing on crypto but similar things are happening on the software side. While there are some clear AI losers in that cohort, there are also some winners for which the market clearly is not doing it’s homework but rather rotating out of all these names together to chase the AI narrative.

Strip out AI names from the Nasdaq and crypto's negative skew largely disappears. The underperformance when markets rally and amplified selling when they drop is almost entirely explained by the AI rotation.

Ex-AI, crypto behaves like a high-beta macro asset with tech correlation. For crypto to outperform again, we need air to come out of the AI trade. Microsoft's weak print started that process, but we need more.

Our take:

“Leverage cleared, but the question is whether demand returns"

Last week felt like capitulation. Vol spiked, over $2.5B in liquidations flushed out, and $60K found buyers. Open interest had been building into the move, funding went sharply negative as shorts piled in, then we got a violent squeeze Friday as positioning unwound. In an environment where spot volumes remain thin, leverage drives price action. Without open interest rebuilding meaningfully, expect limited follow-through on either side. Structural recovery will only happen when spot demand returns of which we currently see little evidence.

But the bigger picture is sobering: cumulative unrealized losses across digital asset treasuries now sit around $25B, concentrated in a few names. With BTC trading below many treasury acquisition costs and premium-to-NAV compressed, these entities look less like marginal buyers but holders, which effectively puts one of the main buyers of the past 18 months offside as raising fresh capital in this environment is unattractive.

The question now is what comes next. We're likely entering a period of choppy price discovery with volatility elevated. Until Coinbase premium flips positive, ETF flows reverse, and basis rates stabilize, it's hard to see sustained upside. While retail spreads attention across other asset classes, institutional flows through ETFs and derivatives now seem to dictate direction.