Bitcoin fell below ~$62,000 on 6th Feb, over -50% from its ~$125,000 peak in Oct. Despite this, Bitcoin is still ~300% higher than in early 2023. We think Bitcoin’s broader sell-off reflects a combination of: (i) hawkish Fed signals; (ii) institutional outflows and thinning liquidity; (iii) stalled regulatory momentum & above all (iv) large derivatives. For instance, US Spot Bitcoin ETFs witnessed outflows of over $3bn in Jan, ~$2bn in Dec, and ~$7bn in Nov 2025. Ultimately, institutions cutting their Bitcoin exposure has led to less money being traded, which in turn has made Bitcoin's price fall even harder. Hawkish Fed signals especially the announcement of the new Fed Chair Kevin Warsh led to a dollar rally and further weakness in Bitcoin. But we believe that a prospective Kevin Warsh-led Federal Reserve could catalyze a regime shift in how Bitcoin trades. Warsh to us is currently a big proponent of bitcoin making a statement earlier this year that if you are under 40, Bitcoin is your new gold. So, we reserve our view on if Warsh is a cause behind current Bitcoin weakness. On the regulatory front, we see the passage of the CLARITY Act as the essential catalyst for advancing/legitimizing digital assets. Progress has been made though the bill remains entrenched in a challenging deliberation process on several key items, namely (in order): (i) DeFi perimeters, (ii) stablecoin rewards, and (iii) tokenized equities among other items. We hear February is unofficially dubbed “crypto month” on the Hill. We expect continued news flow on deliberations with many still targeting an April/May goal post. We remain optimistic on passage by June’26. This should support Bitcoin prices in medium term. But the single largest factor driving Bitcoin prices down is the derivatives playbook. Bitcoin’s original valuation model was built on the idea that supply is fixed at 21 million coins and that price moves based on real buying and selling of those coins. In the early cycles, this was mostly true. But today, that structure has changed. A large share of Bitcoin trading activity now happens through synthetic markets rather than spot markets. This represents almost 95% of daily volumes on Bitcoin now. So, while Bitcoin’s hard cap has not changed, the effective tradable supply influencing price has expanded through synthetic exposure. Price today reacts to leverage, hedging flows, and positioning, not just spot demand. Our own view is that Bitcoin might outperform other dollar debasement proxies such as Gold & Silver from current levels. We see both Kevin Warsh & Trump administration as friendly for digital assets. It is a matter of time before the CLARITY act gets passed into law. Our view also stems from the fact that open interest in Bitcoin perpetuals has fallen from $5 BN levels to $3.6 BN where normally most of the speculative longs are gone. This is incidentally also the highest level of liquidation since Oct’25. Hence, we are of the view that with speculative longs gone, Bitcoin might see a healthy up move soon.
