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Triple Pressure on the Crypto Market: ETF Outflows, Leverage Reset, and Low Liquidity
Original Article Title: Crypto at the Crossroads: ETF Flows, Leverage Reset, and Shallow Liquidity
Original Article Author: Tanay Ved, Coin Metrics
Original Article Translation: Luffy, Foresight News
TL;TR
Major fund inflows channels such as ETFs and DAT have recently experienced weak demand, the October deleveraging process, and the macro hedging background continue to exert pressure on the cryptocurrency market. Futures and DeFi lending markets have completed a comprehensive leverage reset, with the ownership structure becoming cleaner and systemic risk somewhat reduced. The spot liquidity of both mainstream and altcoins has not yet recovered, and the market remains fragile, making it more prone to extreme price fluctuations.
Early in Uptober, Bitcoin briefly surged to a new all-time high, but the optimistic sentiment quickly reversed, with the "10.11" flash crash severely impacting market confidence (Note: Uptober refers to the cryptocurrency market usually experiencing an uptrend in October). Since then, the price of Bitcoin has dropped by about $40,000 (a drop of over 33%), while altcoins have suffered a greater impact, causing the total cryptocurrency market capitalization to fall to nearly $3 trillion. Despite several favorable fundamental developments throughout 2025, the price trend has significantly deviated from market sentiment.
Currently, cryptocurrencies are at a crossroads of multiple external and internal factors. At the macro level, the uncertainty surrounding the December rate cut expectations and the recent weakness in tech stocks have further intensified market risk aversion behavior. Internally in the crypto market, ETFs and Digital Asset Treasuries (DAT) that once served as stable fund inflow channels have experienced outflows; meanwhile, the "10.11" liquidation event triggered one of the most severe deleveraging events in history, with its ongoing effects still persisting, keeping market liquidity low.
This article will delve deep into the core driving factors behind the recent weakness in the cryptocurrency market, examining the ETF fund flows, leverage status in perpetual futures and DeFi markets, and order book liquidity, to explore the current market landscape revealed by these changes.
Macro Shift Towards Risk-Off Mode
Bitcoin's performance has increasingly diverged from major asset classes. Against the backdrop of central banks' record purchases of gold and ongoing trade tensions, gold has delivered a return of over 50% this year, surging continuously, while tech stocks (Nasdaq index) lost momentum in the fourth quarter as the market reassesses the likelihood of an upcoming Fed rate cut and the sustainability of an AI-driven bull market.
As shown in our previous research, Bitcoin has exhibited cyclical relationships with "risk-on" tech stocks and "risk-off" gold, adjusting in response to macroeconomic trends. This makes Bitcoin particularly sensitive to market shocks or catalyst events (such as the October flash crash and recent risk-off sentiment).
In 2025, the performance of Bitcoin, gold, and the Nasdaq Index, data source: Coin Metrics and Google Finance
As the "anchor asset" of the entire cryptocurrency market, Bitcoin's pullback has spread to other assets. While privacy coins and other thematic sectors briefly outperformed, most coins remain highly correlated with Bitcoin.
Weakening Appeal of ETFs and DAT
Bitcoin's recent weakness partly stems from a decline in demand from core funding channels supporting its 2024-2025 trajectory. Since mid-October, ETFs have seen consecutive weeks of net outflows, totaling $4.9 billion, marking the largest redemption wave since Bitcoin dropped to $75,000 ahead of the April 2025 "Liberation Day" tariff announcement. Despite short-term outflows, on-chain holdings continue to trend upward, with BlackRock's IBIT ETF alone holding 780,000 Bitcoin, representing approximately 60% of the total spot Bitcoin ETF holdings.
If ETF inflows recover, it would signal stabilization in this channel. Historical data indicates that ETF demand has been a key force absorbing Bitcoin supply when risk appetite improves.
Weekly net inflows of Bitcoin ETFs, data source: Coin Metrics
Crypto Asset Treasuries (DATs) are also starting to face pressure. With the price correction, DAT firm stock values and crypto asset holdings have shrunk, putting pressure on the net asset value (NAV) premium that supports their growth engine. This has weakened the ability of DATs to acquire new capital through equity issuance or debt financing, thereby limiting the growth of their per-share crypto asset holdings. Smaller emerging DATs are especially sensitive to this, as changes in the market environment may make the cost basis and equity valuation no longer suitable for further accumulation.
The largest DAT by size currently—Strategy—holds 649,870 Bitcoin at an average cost of $74,333 (approximately 3.2% of Bitcoin's total current supply). As shown in the chart below, when Bitcoin's price rises and equity valuation is strong, Strategy's accumulation rate significantly accelerates, with a recent slowdown in accumulation pace. However, Strategy still holds unrealized gains, with its cost basis below the current market price.
If the price continues to drop or faces index exclusion risk, the Strategy may come under pressure; however, an improvement in the market environment is expected to enhance its balance sheet and valuation, creating a more favorable environment for DAT accumulation.
Strategy's Bitcoin purchase amount compared to the average cost basis, data source: Strategy and Bitbo Treasuries
This trend is in line with on-chain profit conditions. The short-term holders (holding period < 155 days) have seen their spent output profit ratio (SOPR) drop to around -23%, entering the loss zone, a level historically indicative of capitulation selling pressure from the most price-sensitive group. Long-term holders are still on average in a profitable state, but SOPR data shows a slight increase in profit-taking behavior. If the short-term SOPR rises above 1.0 while the long-term holders' selling pace slows down, it would signal a gradual market stabilization.
The Decentralization Process of Cryptocurrency: Perpetual Futures, DeFi Lending, and Liquidity
The "10.11" liquidation event initiated a multi-layered deleveraging cycle in futures, DeFi, and stablecoin collateralized leverage, the ongoing impact of which continues to unfold in the cryptocurrency market.
Deleveraging Purge in Perpetual Futures Markets
In a matter of hours, the perpetual futures market saw the largest forced liquidation event in history, with over a 30% reduction in the accumulated open interest (OI). Platforms that cater more to altcoins and retail traders (such as Hyperliquid, Binance, and Bybit) experienced the most significant drop in open interest, aligning with domains of leveraged concentration pre-deleveraging. As shown in the chart below, the current open interest level remains significantly below the pre-crash peak of over $90 billion and has seen a slight subsequent retracement, indicating that leverage within the system has been effectively cleared as the market stabilizes and readjusts.
Simultaneously, the funding rate has also weakened, reflecting a reset in bullish risk sentiment. Bitcoin's funding rate has recently hovered around neutral or slightly negative levels, in line with the market's ongoing lack of directional confidence.
Changes in perpetual contract open interest across exchanges, data source: Coin Metrics
DeFi Deleveraging
The DeFi credit market has also undergone a gradual deleveraging process. Since reaching its peak at the end of September, the active loan size on Aave V3 has continued to decline. Against a backdrop of weak risk appetite and collateral repricing, borrowers have been reducing leverage and repaying debt. The most significant contraction in borrowing, denominated in stablecoins, was witnessed, with the USDe-related lending size plummeting by 65% due to the Ethena USDe de-pegging event, triggering a comprehensive liquidation of synthetic dollar leverage.
Ethereum-related borrowing has also contracted: the loan size for WETH and Liquidity Staking Tokens (LST) has decreased by around 35%-40%, reflecting a reduction in carry trade strategies and a shrinking of interest-bearing collateral strategies.
Aave V3 Active Loan Volume, Data Source: Coin Metrics
Lack of Spot Liquidity
Following the "10/11" liquidation event, spot market liquidity has remained tight. On major trading platforms, the trading depth of assets such as Bitcoin, Ethereum, Solana, etc., is still 30%-40% lower than early October levels within a ±2% range, indicating that liquidity has not yet recovered in line with prices. With a decrease in order book depth, the market remains fragile, and small trades can lead to disproportionate price fluctuations, exacerbating volatility and amplifying the impact of forced selling.
The liquidity situation for altcoins is even worse. Order book depth outside of mainstream assets has seen more severe and prolonged declines, reflecting continued risk aversion in the market and reduced market maker activity. A comprehensive improvement in spot liquidity will help reduce price shocks and stabilize the market, but to date, insufficient depth remains one of the most obvious signals that systemic pressures have not yet been fully relieved.
Exchange Order Book Depth Change, Data Source: Coin Metrics
Conclusion
The cryptocurrency market is undergoing a comprehensive adjustment, influenced by factors such as weak ETF and DAT demand, futures and DeFi market deleveraging, and a lack of spot liquidity. While these dynamics put pressure on prices, they also make the market system healthier, reduce leverage levels, make positions more neutral, and increasingly return to fundamentals.
At the same time, the macro environment remains a major obstacle. Softness in AI stocks, adjustments in interest rate expectations, and an overall risk-averse sentiment have dampened market demand. The market will remain in a tug-of-war between macro risk-off sentiment and the internal market structure of the cryptocurrency world until key funding channels (ETF inflows, DAT holdings, stablecoin supply growth) recover, and spot liquidity rebounds, laying the foundation for market stabilization and eventual reversal. Until then, the market will continue to navigate between macro risk-off sentiment and tensions in the cryptocurrency market structure.
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After the blockade of the Strait of Hormuz, when will the war end?
Before using Musk's "Western WeChat" X Chat, you need to understand these three questions
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There is a sentence on X's official help page that is still hanging there: "If malicious insiders or X itself cause encrypted conversations to be exposed through legal processes, both the sender and receiver will be completely unaware."
No. The difference lies in where the keys are stored.
In Signal's end-to-end encryption, the keys never leave your device. X, the court, or any external party does not hold your keys. Signal's servers have nothing to decrypt your messages; even if they were subpoenaed, they could only provide registration timestamps and last connection times, as evidenced by past subpoena records.
X Chat uses the Juicebox protocol. This solution divides the key into three parts, each stored on three servers operated by X. When recovering the key with a PIN code, the system retrieves these three shards from X's servers and recombines them. No matter how complex the PIN code is, X is the actual custodian of the key, not the user.
This is the technical background of the "help page sentence": because the key is on X's servers, X has the ability to respond to legal processes without the user's knowledge. Signal does not have this capability, not because of policy, but because it simply does not have the key.
The following illustration compares the security mechanisms of Signal, WhatsApp, Telegram, and X Chat along six dimensions. X Chat is the only one of the four where the platform holds the key and the only one without Forward Secrecy.
The significance of Forward Secrecy is that even if a key is compromised at a certain point in time, historical messages cannot be decrypted because each message has a unique key. Signal's Double Ratchet protocol automatically updates the key after each message, a mechanism lacking in X Chat.
After analyzing the X Chat architecture in June 2025, Johns Hopkins University cryptology professor Matthew Green commented, "If we judge XChat as an end-to-end encryption scheme, this seems like a pretty game-over type of vulnerability." He later added, "I would not trust this any more than I trust current unencrypted DMs."
From a September 2025 TechCrunch report to being live in April 2026, this architecture saw no changes.
In a February 9, 2026 tweet, Musk pledged to undergo rigorous security tests of X Chat before its launch on X Chat and to open source all the code.
As of the April 17 launch date, no independent third-party audit has been completed, there is no official code repository on GitHub, the App Store's privacy label reveals X Chat collects five or more categories of data including location, contact info, and search history, directly contradicting the marketing claim of "No Ads, No Trackers."
Not continuous monitoring, but a clear access point.
For every message on X Chat, users can long-press and select "Ask Grok." When this button is clicked, the message is delivered to Grok in plaintext, transitioning from encrypted to unencrypted at this stage.
This design is not a vulnerability but a feature. However, X Chat's privacy policy does not state whether this plaintext data will be used for Grok's model training or if Grok will store this conversation content. By actively clicking "Ask Grok," users are voluntarily removing the encryption protection of that message.
There is also a structural issue: How quickly will this button shift from an "optional feature" to a "default habit"? The higher the quality of Grok's replies, the more frequently users will rely on it, leading to an increase in the proportion of messages flowing out of encryption protection. The actual encryption strength of X Chat, in the long run, depends not only on the design of the Juicebox protocol but also on the frequency of user clicks on "Ask Grok."
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In the global smartphone market, Android holds about 73%, while iOS holds about 27% (IDC/Statista, 2025). Of WhatsApp's 3.14 billion monthly active users, 73% are on Android (according to Demand Sage). In India, WhatsApp covers 854 million users, with over 95% Android penetration. In Brazil, there are 148 million users, with 81% on Android, and in Indonesia, there are 112 million users, with 87% on Android.
WhatsApp's dominance in the global communication market is built on Android. Signal, with a monthly active user base of around 85 million, also relies mainly on privacy-conscious users in Android-dominant countries.
X Chat circumvented this battlefield, with two possible interpretations. One is technical debt; X Chat is built with Rust, and achieving cross-platform support is not easy, so prioritizing iOS may be an engineering constraint. The other is a strategic choice; with iOS holding a market share of nearly 55% in the U.S., X's core user base being in the U.S., prioritizing iOS means focusing on their core user base rather than engaging in direct competition with Android-dominated emerging markets and WhatsApp.
These two interpretations are not mutually exclusive, leading to the same result: X Chat's debut saw it willingly forfeit 73% of the global smartphone user base.
This matter has been described by some: X Chat, along with X Money and Grok, forms a trifecta creating a closed-loop data system parallel to the existing infrastructure, similar in concept to the WeChat ecosystem. This assessment is not new, but with X Chat's launch, it's worth revisiting the schematic.
X Chat generates communication metadata, including information on who is talking to whom, for how long, and how frequently. This data flows into X's identity system. Part of the message content goes through the Ask Grok feature and enters Grok's processing chain. Financial transactions are handled by X Money: external public testing was completed in March, opening to the public in April, enabling fiat peer-to-peer transfers via Visa Direct. A senior Fireblocks executive confirmed plans for cryptocurrency payments to go live by the end of the year, holding money transmitter licenses in over 40 U.S. states currently.
Every WeChat feature operates within China's regulatory framework. Musk's system operates within Western regulatory frameworks, but he also serves as the head of the Department of Government Efficiency (DOGE). This is not a WeChat replica; it is a reenactment of the same logic under different political conditions.
The difference is that WeChat has never explicitly claimed to be "end-to-end encrypted" on its main interface, whereas X Chat does. "End-to-end encryption" in user perception means that no one, not even the platform, can see your messages. X Chat's architectural design does not meet this user expectation, but it uses this term.
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The help page sentence has never been just technical instructions.
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