Spring is Coming

The truth behind the Bitcoin plunge is not the various conspiracy theories circulating in the market, but rather a systematic reduction of exposure by a group of long institutions through spot liquidations, unwinding leveraged positions, and selling call options. This perspective reveals the most core characteristic of this cycle—institutionalization, as the market’s pricing logic has undergone a fundamental shift.

The prevalence of conspiracy theories stems from the human brain’s psychological bias against complexity, as well as retail investors’ continued habit of judging the market using on-chain data thinking, ignoring the fact that current pricing power has shifted into the hands of sophisticated Western institutional investors. Institutions manage their exposure through OTC trading, options strategies, and CME futures, operations that are not directly visible on-chain, making it difficult for ordinary investors to intuitively understand the true causes of price fluctuations.

The motivation behind institutional liquidations is the result of multi-dimensional resonance. On a macro level, early 2026 inflation data remains volatile, market expectations for Fed rate cuts have significantly converged, and the 10-year US Treasury yield remains high, suppressing valuations of all assets that do not generate cash flow. When the investment committees of these institutions decide to reduce risk, the first to be cut are often Bitcoin holdings with the highest volatility. On a micro level, some quantitative funds trading based on historical patterns are taking profits and locking in gains from the past two years. Meanwhile, the AI sector shows clearer commercial prospects, prompting some funds to sell their most liquid Bitcoin assets to raise funds for AI investments. Even news of breakthroughs in quantum computing, though far from cracking SHA-256, can lead institutions to reduce positions out of fiduciary responsibility to hedge tail risks.

Zooming out to the global macro level, the crypto winter is not an isolated event. Recently, US tech stocks have struggled, and the market no longer settles for stories but demands confirmed growth. The Chinese central bank and other departments have recently reiterated notices to prevent and resolve risks related to virtual currencies, clarifying that domestic participation in cryptocurrency trading is an illegal financial activity. This aims to prevent financial risks from spreading domestically and also provides a firewall mechanism for Hong Kong’s development of a compliant virtual asset hub.

Despite the disappointing price movements, the underlying infrastructure of the market demonstrates unprecedented resilience. Mainstream exchanges are operating normally, custodial institutions are solvent, and 17 of the top 25 Bitcoin ETF holders increased their positions in Q4 last year. This state of falling prices but system stability is characteristic of mature markets. Meanwhile, Bitcoin supply continues to tighten spontaneously, with exchange balances dropping to multi-year lows. Long-term holders are withdrawing chips into cold wallets, creating a divergence between supply scarcity and depressed prices, often a prelude to the next trend rally.

Matt Hougan describes the current market as a typical crypto winter but also hints that spring will eventually arrive. The next wave of market movement will require new catalysts such as a clear shift in Fed monetary policy, further progress in compliance, or breakthroughs in technological applications. For investors, it is advisable to abandon the anxiety caused by conspiracy theories, return to simple asset valuation logic, maintain moderate cash positions, focus on institutional cost ranges for phased accumulation, and strictly comply with domestic laws and regulations. When the noise subsides and bubbles are squeezed out, what remains will be a more solid foundation of value.