The key drivers that propelled Bitcoin to a peak in October are now contributing to its price decline to multi-month lows. According to NYDIG, reversals in crypto treasuries and outflows from crypto funds suggest "actual capital flight" rather than solely negative sentiment.
NYDIG head of research, Greg Cipolaro, stated in a note on Friday that exchange-traded fund (ETF) inflows and demand for digital asset treasuries (DATs) were crucial for Bitcoin's (BTC) previous cycle.
However, Cipolaro explained that a major liquidation event in early October caused ETF inflows to reverse, treasury premiums to collapse, and stablecoin supply to decline. This signaled liquidity leaving the system and indicated, in "classic signs," that the market 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."
Cipolaro added, "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."
ETF Capital Outflows Coincide with Growing Bitcoin Dominance
Spot Bitcoin ETFs, which Cipolaro identified as the standout success of the current cycle, have transitioned from being a "reliable inflow engine" to a "meaningful headwind." Nevertheless, a broader range of factors, including global liquidity shifts, macroeconomic headlines, market structure stress, and behavioral dynamics, continue to influence Bitcoin's price.
"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 commented.
Bitcoin dominance rose back above 60% in early November and has since stabilized around 58% as of Monday, according to crypto data platform CoinMarketCap.
Declines Observed in Digital Asset Treasuries and Stablecoins
Digital asset treasuries (DATs) and stablecoins were also significant sources of structural demand for Bitcoin. However, Cipolaro noted that DAT premiums, which reflect share prices relative to net asset value (NAV), have compressed across the board. Furthermore, stablecoin supply has decreased for the first time in months, indicating that investors are withdrawing liquidity from the ecosystem.
Even if the market drawdown intensifies, Cipolaro believes the DAT sector has a substantial 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."
He elaborated, "Leverage remains modest, interest obligations are manageable, and many DAT structures allow issuers to suspend dividend or coupon payments if needed."
Bitcoin's Long-Term Trajectory Remains Unchanged
Despite the recent pullback, Cipolaro maintains that the "secular story for Bitcoin remains intact." He points to its continued institutional traction, growing sovereign interest, and its enduring role as a neutral, programmable monetary asset.
"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 stated.
"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."