Greg Cipolaro has pointed out that Bitcoin’s drop to $84,000 wasn’t just a matter of mood but more about underlying market mechanics. As the NYDIG Global Research Director noted in a recent report, the key engine driving the anticipated 2024-2025 rally appears to have shifted into reverse.
Initially, spot Bitcoin ETFs had been a primary source of demand. However, they are now experiencing significant redemptions. At the beginning of this year, these ETFs injected billions into Bitcoin, but after just five days, the flow turned negative.
According to data from SoSoValue, these ETFs are poised to record their largest monthly outflows since their launch, with November already seeing outflows of $3.55 billion, nearly reaching the previous high of $3.56 billion in February.
Aggressive capital flight
Stablecoins reflect similar trends.
There’s been a notable decline in total supply recently, particularly in the algorithmic USDE token, which has seen almost a 50% drop in its supply since the liquidation shock on October 10. Cipolaro remarked that this decline indicates that money is exiting the market instead of merely sitting on the sidelines.
He stated, “The swift contraction, especially given its role in the crash that saw Binance drop to $0.65, underscores the aggressive capital flight happening.”
The report suggests that further signs point toward capital outflows.
Additionally, the corporate bond trade, which was previously based on the DAT stock premium relative to net asset value, has also plummeted. As those premiums have shifted to discounts, companies that used to issue stock to invest in Bitcoin are now offloading assets or repurchasing their own shares. Sequans, for instance, recently sold BTC in an effort to reduce debt.
Cipolaro emphasized that, even though the current shift indicates a movement away from strong demand, none of the DATs have shown any signs of severe financial trouble. The leverage in the system remains modest, interest obligations are manageable, and many DAT structures allow for the suspension of dividend or coupon payments when necessary.
While companies like Strategies and the nation of El Salvador made large Bitcoin purchases during the price drop, those efforts failed to halt the downward trend. Cipolaro noted, “The failure of these significant purchases to even slow the decrease is quite revealing.”
He argued that these changes are creating a feedback loop, originating from the $19 billion liquidation incident on October 10. The very mechanisms that previously supported rising prices are now contributing to the decline.
In his view, investors should be cautious yet optimistic, hoping for the best while preparing for potential downturns. He remarked, “Although the long-term theory still holds, the short-term landscape might be influenced by familiar business cycle dynamics.”
Cipolaro added, “History suggests the path ahead might be rocky, but long-term beliefs remain a vital asset for investors.”
