Crypto Funding Rate Signals Market Turn

What to Know:

• The anticipated year-end crypto rally fueled by factors like spot altcoin ETFs and digital asset treasuries (DATs) has failed to materialize, with Bitcoin significantly underperforming.
• Digital asset treasuries (DATs), once seen as a flywheel for crypto prices, are now facing potential forced selling as their stock prices plunge below net asset value.
• Despite strong inflows into some altcoin ETFs, the prices of underlying tokens like SOL and XRP have plummeted, indicating that ETF success does not guarantee price appreciation in the current market.

Despite initial optimism and predictions of a strong finish to the year, the crypto market has experienced significant headwinds, leading to disappointing performance. Bitcoin, in particular, has struggled, declining 23% since the start of October, even as equities and precious metals have rallied. Several factors that were expected to drive the market higher, such as digital asset treasuries (DATs), spot altcoin ETFs, and historical seasonal trends, have instead become sources of downward pressure. This unexpected turn of events has left investors reassessing their strategies and questioning the catalysts for future growth in the crypto space.

DATs Flywheel Turns into Tailspin

Digital asset treasuries (DATs), companies that hold crypto as a primary asset, were initially seen as a powerful mechanism to drive crypto prices higher. The model, popularized by Michael Saylor’s Strategy (MSTR), involved raising capital through stock and debt offerings to purchase Bitcoin and other cryptocurrencies. However, investor enthusiasm waned quickly after an initial surge, and as crypto prices declined in October, the sell-off in DATs accelerated. Many of these companies saw their stock prices fall below their net asset value (NAV), limiting their ability to raise additional capital. Consequently, buying activity slowed and eventually stopped, with some DATs now using their cash reserves to repurchase shares instead of acquiring more crypto. The fear is that these companies could become forced sellers, adding further downward pressure to an already fragile market.

Altcoin ETFs Fail to Deliver Expected Boost

The introduction of spot altcoin ETFs in the U.S. was expected to provide a significant boost to the crypto market by opening it up to a wider range of investors. While some of these ETFs have attracted substantial inflows, their impact on the prices of the underlying tokens has been disappointing. Solana ETFs, for example, have accumulated $900 million in assets since late October, and XRP vehicles have surpassed $1 billion in net inflows in just over a month. Despite this strong demand, the prices of SOL and XRP have plummeted by 35% and almost 20%, respectively, since the ETF debuts. This suggests that ETF inflows alone are not enough to offset broader market sentiment and selling pressure. ETFs focused on smaller altcoins have seen negligible demand, further highlighting the challenges facing the altcoin market.

Seasonality Fails as a Crypto Market Catalyst

Historically, the fourth quarter has been the strongest period for Bitcoin returns, leading many analysts to predict a year-end rally. However, this year is shaping up to be an exception to that trend. Since 2013, Bitcoin’s average fourth-quarter return has been an impressive 77%, with positive returns in eight out of twelve years. The exceptions to this positive trend occurred during deep bear markets in 2014, 2018, 2019 and 2022. With Bitcoin down 23% since the start of October, 2025 is on track to join this list of negative fourth quarters. This serves as a reminder that past performance is not a guarantee of future results, and that broader market conditions can override historical trends. The failure of seasonality to act as a catalyst has further dampened sentiment in the crypto market.

Liquidity Void and the Search for New Catalysts

The $19 billion liquidation cascade on October 10 exposed the fragility of the crypto market and the persistent lack of liquidity. Despite the increasing institutionalization of crypto through ETFs, the market remains vulnerable to sharp price swings and cascading liquidations. The sell-off eroded investor confidence, leading to a decline in leverage and open interest. While Bitcoin has recovered somewhat since its local low on November 21, the recent price appreciation has been driven primarily by short covering rather than genuine buyer demand. This suggests that the market lacks the underlying strength to sustain a prolonged rally. With the expected catalysts for 2025 failing to materialize, investors are now searching for new drivers of growth in 2026 and beyond.

The underperformance of Bitcoin and the broader crypto market highlights the challenges and complexities of investing in this asset class. The failure of anticipated catalysts to deliver expected results underscores the need for a more cautious and discerning approach. While the long-term potential of crypto remains, investors should be prepared for continued volatility and uncertainty.

Related: XRP Forecast Turns Negative

Source: Original article