NYDIG executive: The reversal of the ETF and treasury's positive feedback loop is pulling Bitcoin down to several month lows, and the market sentiment is not the main cause.

Greg Cipolaro, the research director at NYDIG, stated that the same cyclical mechanism driving the rise of Bitcoin—ETF fund inflows, demand for digital asset treasury DAT, and the increase in stablecoin liquidity—has now reversed, indicating what he calls a “real capital flight,” rather than merely a market sentiment downturn.

After the market fluctuated in October, ETF fund inflows turned negative. In a report on Friday, Siboraro explained that the last significant rise in Bitcoin was closely related to strong fund inflows into the spot ETF and active treasury accumulation. However, a severe liquidation at the beginning of October broke this cycle. ETF fund inflows turned negative, DAT premiums plummeted, and the supply of stablecoins declined for the first time in months.

He stated that these are typical signs of liquidity flowing out of the system. “Once this cycle is broken, the market tends to follow a predictable trajectory. Liquidity tightens, leverage tries to rebuild but fails to gain momentum, and the factors that previously drove funds in also become ineffective. The story has changed, but the mechanism has not.”

The spot Bitcoin ETF was once the biggest success story in the market for 2024-2025, but it has now become a resistance, shifting from a continuous inflow engine to a large-scale net outflow. Cipollaro emphasized that broader factors such as global liquidity changes, macroeconomic uncertainty, and structural market pressures are exacerbating the current decline.

Despite the sell-off, Bitcoin's market share is still rising, which is a common pattern during market downturns. As risk assets are sold off, funds tend to flow into the most liquid and mature Bitcoin. According to market data, Bitcoin's market share briefly exceeded 60% in early November, and then stabilized around 58%.

In the early stages of this cycle, DAT and stablecoins were the main structural demand sources for Bitcoin. Nowadays, the DAT premium across the entire cryptocurrency sector has narrowed, and the supply of stablecoins has also decreased, indicating that investors are generally withdrawing from the cryptocurrency market. However, Western Polaro stated that the DAT market remains stable, with no obvious signs of financial pressure.

He said, “The leverage ratio remains moderate, interest expenses are controllable, and many DAT structures allow issuers to suspend dividend or interest payments when necessary.” Despite the increasing short-term risks, Cipollaro believes that the long-term development trajectory of Bitcoin, driven by institutional adoption, sovereign interest, and its role as a neutral programmable currency, remains unchanged. “Nothing that has happened in the past few weeks has altered this long-term development trajectory. However, the cyclical changes driven by capital flows, leverage, and instinctive market reactions are now more pronounced. Investors should have the best hopes but also be prepared for the worst.”

He warned that if past cycles can be used as a reference, then the road ahead may be bumpy and stressful, with liquidity restructuring again leading to sudden turbulence in the market.

According to reports, the New York Stock Exchange has approved the listing of Grayscale's XRP and Dogecoin exchange-traded fund (ETF), and these two products will start trading on Monday. (Cryptonews)