Bitcoin

has been cut almost in half since its October high. By almost every measure, the selloff is the worst since the collapse of FTX. But there is a puzzle at the centre of the wreckage: the institutional scaffolding that was built around the coin during the boom hasn’t come down with it.

The ETF money has mostly stayed. Wall Street is still in. And while some tactical investors have headed for the exits, the longer-term holders have proved harder to shake loose. That disconnect between price and market resilience is fueling a contrarian bull case that selloff has largely drowned out.

The bearish case needs no help. After Wednesday’s rebound, Bitcoin weakened Thursday morning in Asia trading, falling as much as 1.9 per cent to about US$67,600, a far cry from its October peak above US$126,000 and a US$1 trillion market fall.

Nearly 45 per cent of all coins out there are worth less than what their holders paid. Options traders are paying for crash protection. Faith that institutional adoption would cushion the downside has evaporated. And weeks of ETF outflows have led many to one conclusion: the mainstream experiment is misfiring.

Yet contrarians say those outflow numbers need context. Brett Munster at Blockforce Capital points out that cumulative net inflows into spot

Bitcoin ETFs

since their January 2024 launch amount to tens of billions of dollars. The chunk that has left in the recent streak comes out to just about six per cent of the total.

That pattern is “clear evidence of consolidation rather than capitulation among this investor base,” he wrote in a note, adding that 17 of the top 25 largest Bitcoin ETF holders added to their positions in the fourth quarter.

Bitcoin offered a glimpse of a positive case Wednesday, climbing more than nine per cent at one point to just under US$70,000, as stocks posted modest gains and risk sentiment improved. Whether the bounce holds or fades like so many before it is the question that divides the market.

To answer that, bulls point beyond the ETF data — to what happened the last time Bitcoin fell this hard. In 2022, the infrastructure first wobbled, then disintegrated. FTX, Celsius, BlockFi and Three Arrows Capital all blew up in rapid succession, wiping out not just capital but the custodians, lenders and exchanges the market depended on. Confidence was incinerated.

This time, nothing big has broken. The exchanges are running. The custodians are solvent. And the banks — far from retreating — are accelerating. More than half of the largest

U.S. banks

have announced crypto-related products or are in the process of working on offerings, according to Bitcoin financial services firm River.

“The current Bitcoin price action is a mere crisis of confidence. Nothing broke, no skeletons will show up,” wrote Gautam Chhugani, senior analyst of global digital assets at Bernstein. “The Bitcoin bear case is the weakest in its history,” he said, adding that he expects the token to reach US$150,000 in 2026.

There is a fair objection to pro-Wall Street logic. Much of what traditional financial institutions are building has less to do with Bitcoin itself than with the blockchain technology underneath it.

JPMorgan Chase & Co.

’s tokenized money market fund runs on Ethereum. The stablecoin push — led by Circle Internet Group Inc. and others — could thrive even if Bitcoin never recovers. Digital infrastructure can grow without Bitcoin’s price growing alongside it.

But the bulls argue that misses the second-order effect. Every bank that opens a crypto trading desk, every brokerage that adds a Bitcoin button, every adviser newly authorized to recommend ETFs — they are all widening the universe of people who can buy Bitcoin with a single click.

When a bank tells thousands of financial advisers they can now recommend crypto, that doesn’t move Bitcoin’s price today. But it means the next time sentiment turns, the buying capacity available to the market will be dramatically larger than anything that existed in prior cycles. The infrastructure may be agnostic about price. It is not agnostic about access. And access, in every previous Bitcoin cycle, is what turned recoveries into rallies.

Fidelity Digital Assets pushes the structural argument further. Public companies and spot ETFs now collectively hold nearly 12 per cent of Bitcoin’s circulating supply. The public-company cohort — despite the cracks in the token-accumulating business model — has increased its aggregate holdings nearly every quarter since early 2020. Fidelity’s research team argues this creates a demand floor that didn’t exist in prior cycles: a growing pool of supply held by entities with long time horizons and a strong disinclination to sell into weakness.

In the latest quarter, university endowments such as those of Harvard University and Dartmouth College continued to hold crypto ETFs, according to recent 13F filings. Overseas Hong Kong–based Laurore Ltd. made its first significant move into institutional crypto, increasing its BlackRock Bitcoin ETF holdings by 8 million shares.

The supply side is tightening independently. Bitcoin’s fourth halving in April 2024 cut new issuance in half. With more coins locked up and fewer being mined, the amount freely available to trade is shrinking — even as prices fall. If that compression holds, the snap-back, if and when it arrives, could be sharper than the market is pricing.

None of which means the bottom is in. The bull case is colliding with a market that doesn’t want to hear it. The bearish argument has momentum, narrative control and the price chart on its side.

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But the infrastructure that powers the market — the part that actually broke last time — is not just intact. It is growing. Whether that matters more than the price, or whether the price eventually breaks the infrastructure too, is the bet the contrarians are making. It is a lonely one right now. But the evidence beneath the price suggests it might not stay that way.

“All the reasons Bitcoin has generally rallied over the past 15 years are still true,” said Matthew Hougan, chief investment officer at Bitwise Asset Management. “The world is getting more digital; there’s rising global concern about fiat currencies; regulations and access are improving; the people who grew up with Bitcoin are getting richer and older each year.”

Bloomberg.com