$BTC and $ETH have noticeably lagged other risk assets. We believe the primary causes are the trading cycle, markets micro structure, and market manipulation by certain exchanges, market makers, or speculative funds.
Market Background
First, the deleveraging-style decline that began in October caused heavy losses for leveraged participants, especially retail traders. A large portion of speculative capital was wiped out, leaving the market fragile and risk averse.
At the same time, AI-related equities across China, Japan, Korea, and the US surged aggressively. Precious metals experienced a similar FOMO-driven, meme-like rally. These moves absorbed a significant amount of retail capital. This matters because retail investors in Asia and the US remain the primary force in crypto markets.
Another structural issue is that crypto capital is not part of the traditional finance ecosystem. In TradFi, commodities, equities, and FX can all be traded within the same account, making changing asset allocation frictionless. By contrast, moving capital from TradFi into crypto still faces regulatory, operational, and psychological barriers.
Finally, the crypto market has a limited presence of professional institutional investors. Most participants are non-professional, lack independent analytical frameworks, and are easily influenced by speculative funds or exchanges that act as market makers and actively shape sentiment. Narratives such as the “four-year cycle” or the so-called “Christmas curse” are repeatedly promoted despite lacking solid logic or data.
Simplistic linear thinking dominates, for example directly attributing BTC’s moves to events like the July 2024 yen appreciation without deeper analysis. These narratives spread widely and directly influence prices.
Below, we analyze the issue through our own independent thinking rather than short-term narratives.
Time Horizon Matters
Over a three-year horizon, BTC and ETH have underperformed other major assets, with ETH being the weakest.
Over a six-year horizon (since Mar 12th, 2020), both BTC and ETH have outperformed most assets, and ETH becomes the strongest performer.
When the timeframe is extended and viewed from a macro perspective, the short-term underperformance view is simply a mean reversion within a much longer historical cycle.
Ignoring underlying logic and selectively focusing on short-term price behavior is one of the biggest mistakes in investment analysis.
Rotation Is Normal
Before the silver short squeezing that began last October, silver was also among the weakest RISK ASSETS. Today, it has become the strongest performer on a three-year basis.
This is directly comparable to BTC and ETH. They remain among the strongest assets over a six-year cycle, even though they are currently underperforming in the short term.
As long as BTC’s narrative as “digital gold” and a store of value has not been fundamentally invalidated, and as long as ETH continues to integrate with the AI wave and serve as core infrastructure for the RWA trend, there is no rational basis for them to become long-term underperformers relative to other assets.
Once again, ignoring fundamentals and cherry-picking short-term price movements is a major analytical error.
Market Structure and Deleveraging
The current crypto market shares striking similarities with the leveraged and subsequent deleveraging environment of China’s A-share market in 2015.
In June 2015, after a leverage-driven bull market stalled and valuation bubbles burst, the market entered an A–B–C pattern decline, consistent with Elliott Wave theory. After the C wave bottomed, prices consolidated sideways for several months before transitioning into a multi-year bull market.
That bull market was driven by low valuations of blue-chip, improving macro policy, and looser monetary conditions.
BTC and the CD20 index have closely replicated this leverage and deleveraging pattern, including the timing and structure.
The underlying similarities are clear. Both environments featured high leverage, extreme volatility, peaks driven by valuation of bubbles and herd behavior, repeated deleveraging waves, grinding declines, falling volatility, and futures of contango.
Today, this contango is reflected in discounts of DAT-related equities such as MSTR and BMNR prices relative to their mNAV.
At the same time, macro conditions are improving. Regulatory clarity is advancing through initiatives like the Clarity Act. The SEC and CFTC are actively promoting on-chain US equities trading.
Monetary conditions are easing through rate cuts, the end of QT, repo liquidity injections, and increasingly dovish expectations around the next Fed chair.
ETH and Tesla: A Useful Analogy
ETH’s recent price action closely resembles Tesla’s behavior in 2024.
Tesla formed a head-and-shoulders bottom, followed by a rise, consolidation, another push higher, a prolonged topping phase, a sharp decline, and then extended sideways consolidation.
In May 2025, Tesla finally broke out upward and entered a new bull market, driven by sales growth in China, rising Trump election odds, and the monetization of political network.
ETH today shows strong similarities to Tesla at that stage, both technically and fundamentally.
The underlying logic is also comparable. Both assets combine technology narratives with meme dynamics. Both attracted high leverage, experienced extreme volatility, peaked during valuation of bubbles driven by herd behavior, and then entered repeated deleveraging cycles.
Over time, volatility declined while fundamentals and macro conditions improved.
From futures trading volume, BTC and ETH activity is now close to historical lows, suggesting the deleveraging process is nearing completion.
Are BTC and ETH “Risk Assets”?
Recently, a strange narrative has emerged claiming that BTC and ETH are simply risk assets and claiming that this explains why they are not following the rally in US equities, A-shares, precious metals, or base metals.
Risk assets are defined by high volatility and high beta. From both behavioral finance and quantitative perspectives, US equities, A-shares, base metals, BTC, and ETH all qualify as risk assets and tend to benefit from risk-on environments.
BTC and ETH, however, have additional characteristics. Due to DeFi and on-chain settlement features, they also exhibit safe-haven properties like precious metals, especially during geopolitical stress.
Labeling BTC and ETH as pure risk assets and claiming they cannot benefit from macro expansion selectively emphasizes negative factors.
Examples include EU–US new tariffs war due to Greenland, Canada–US tariffs war, or possible US–Iran military conflicts. This is a form of cherry-picking and double standards.
In theory, if these risks were truly systemic, all risk assets would fall, except base metals might be an exception due to war-driven demand. In reality, these risks lack the foundation for major escalation.
AI and high-tech demand remain extremely strong and largely unaffected by geopolitical noise, particularly in leading economies such as China and the US. As a result, equity markets have not meaningfully priced in these risks.
Most of these concerns have already been downgraded or disproven. This raises a key question: why are BTC and ETH disproportionately sensitive to negative narratives, yet slow to respond to positive developments or the resolution of those negatives?
The Real Reasons
We believe the reasons are internal to crypto itself.
The market is nearing the end of a deleveraging cycle, leaving participants nervous and hypersensitive to downside risk.
Crypto remains dominated by retail investors, with limited participation from professional institutions. ETF flows largely reflect passive sentiment-following rather than active conviction-based investment.
Similarly, most DATs build positions passively, either directly or through third-party passive fund managers, typically using non-aggressive algorithmic orders like VWAP or TWAP that are designed to minimize intraday volatility.
This stands in sharp contrast to speculative funds, whose primary goal is to generate intraday volatility, currently mostly downside, in order to manipulate price action.
Retail traders frequently use 10–20x leverage. This creates opportunities for exchanges, market makers, or speculative funds to exploit market micro structure rather than tolerate medium to long term volatility.
We frequently observe concentrated selloffs during periods of thin liquidity, particularly when Asian or US investors are asleep, for example between 00:00–8:00 AM Asian time. These moves trigger liquidations, margin calls, and forced selling.
Without meaningful new capital inflows or before the return of FOMO sentiment, existing capital alone is insufficient to counteract this type of market behavior.
Definition of Risk Assets
Risk assets are financial instruments that carry a degree of risk, including equities, commodities, high-yield bonds, real estate, and currencies.
Risk assets refer to any financial security or instrument that is not considered risk-free. These assets are characterized by their potential for price volatility and fluctuations in value.
Common examples of risk assets include:
Equities (Stocks): Shares of companies that can experience significant price changes based on market conditions and company performance.
Commodities: Physical goods such as oil, gold, and agricultural products that can be affected by supply and demand dynamics.
High-Yield Bonds: Bonds that offer higher interest rates due to their lower credit ratings, which come with increased risk of default.
Real Estate: Property investments that can fluctuate in value based on market trends and economic conditions.
Currencies: Foreign exchange markets where currency values can change rapidly due to geopolitical events and economic indicators.
Characteristics of Risk Assets
Volatility: Risk assets are subject to price fluctuations, which can lead to both potential gains and losses for investors.
Investment Returns: Generally, the higher the risk associated with an asset, the greater the potential return. However, this also means a higher chance of loss.
Market Sensitivity: The value of risk assets can be influenced by various factors, including interest rates, economic conditions, and investor sentiment.