Bitcoin Market Commentary

Bitcoin has experienced a sharp pullback over the past 6 weeks, materially outpacing the more modest corrections seen in broader markets. The cryptoasset has declined 33% since reaching its all-time high of US$126K in early October.¹ The recent price action cannot be attributed to a single headline event or discrete catalyst. Instead, in our view, it reflects a confluence of loosely connected factors and evolving market structure dynamics:

• Shift in U.S. Federal Reserve (Fed) Outlook: Expectations for slower Fed rate cuts have pushed U.S. real yields higher. While bitcoin’s fundamentals are largely detached from traditional economic drivers or country risks, bitcoin has historically shown sensitivity to USD real rates, similar to gold and emerging market currencies. The latest dip, on Nov. 30, appeared to be primarily triggered by the Bank of Japan announcing a potential December rate hike.
• Unwinding of Excessive Leverage: Heavy use of leveraged perpetual futures in cryptoasset trading amplified short-term speculation and precipitated a “flash crash” on Oct. 10, which triggered cascading liquidations that wiped out over 30% of futures open interest. Lingering aftereffects of this leverage-driven sell-off persists, contributing to an overhang in the market.
• Whales Rebalancing: For a substantial cohort of long-time bitcoin holders (many with cost bases of <$1k), $100K represented a key psychological milestone and implicit portfolio rebalancing trigger. We observe that crossing this threshold prompted investors with concentrated exposure to begin reducing outsized bitcoin positions, thereby adding incremental selling pressure to the market.
• Unwind of Digital Asset Treasury Optimism: Shares of digital asset treasury companies (DATs) have sold off sharply QTD and now predominantly trade near or below NAV. The large premiums that spurred a flurry of new listings earlier this year have vanished, removing a source of buying pressure and raising questions of whether some treasury companies will conduct asset sales to bring their share prices back to NAV.

While short-term direction is difficult to predict, drawdowns have historically provided attractive long-term entry points. Market corrections tend to curb excesses, with recent liquidations removing significant leverage from the crypto ecosystem, bringing speculative positioning back to more sustainable levels. Valuations for digital asset treasury companies have also markedly compressed, with marquee names now trading closer to or below NAV, as pricing resets toward underlying fundamentals.

Looking ahead, bitcoin’s long-term fundamental drivers appear intact – institutional adoption, regulatory maturation, and rising global concerns around sovereign debt levels and geopolitical fragmentation continue to support bitcoin’s strategic investment case.

In our view, the path forward in 2026 is likely to be driven in large part by liquidity conditions in the U.S. and other major economies - i.e., the pace of rate cuts – and by the trajectory of Institutional and Wealth Advisory adoption, which has trended rather steadily upward since the U.S. bitcoin ETPs first launched in January 2024.

As always with bitcoin and other cryptoassets, a volatile journey is likely to be part of the equation, in either direction.