Bitcoin's "Marginal Paradox": Who Is Still Paying Under the New Order?

After experiencing multiple all-time highs at the end of 2025, the Bitcoin market faces a paradoxical dilemma—prices keep hitting record highs, yet participation enthusiasm continues to cool down. The deeper issue is: the marginal participants who truly determine market ups and downs are quietly exiting. This not only changes the nature of capital flows but also redefines the entire structure of market participants in the crypto space.

When the marginal buyers are absent, what does the market lose? Senior analyst at Primitive Ventures points out that this is the fundamental reason behind the current “artificially inflated” phenomenon in the crypto market. High prices mask a cliff-like decline in underlying participant activity—retail traders’ enthusiasm dissipates, institutional allocations increase but are mostly passive funds, and the truly risk-tolerant and execution-capable incremental capital has already shifted to US stocks and other traditional assets.

Who is Missing: The Great Retreat of Marginal Participants

Transaction volume data from exchanges provides an obvious clue. The traffic on leading platforms like Binance and Coinbase has been steadily declining since the peak of the 2021 bull market, even when BTC hit new all-time highs, failing to trigger a significant user rebound. What does this mean? The marginal participants—those retail investors most sensitive to price and easily driven by FOMO—are organizing a withdrawal.

Even more dramatic are the changes in the Korean market. As a typical example of high-frequency speculative retail traders globally, Korean investors used to be the main force on exchanges like Upbit. But 2025 data shows that Upbit’s daily trading volume plummeted by 80% compared to 2024. Where did these retail investors go? The answer is—shifted to US stocks (net buying record of $31 billion) and the Korean local stock market (KOSPI up over 70% for the year).

When the marginal buyers leave, the market’s price discovery mechanism begins to break down. Without eager, continuously flowing new retail investors, the market loses its most powerful “purchasers”. And when this marginal force is missing, any upward trend appears weak—no follow-through, no bottom-fishing, no sustained push.

Domestic and International Capital Divergence

Against the backdrop of a Federal Reserve policy-friendly environment, a peculiar phenomenon has emerged: US spot buying continues to surge, while international spot sales occur at highs. This divergence fundamentally reflects differing behaviors among marginal participants.

Looking at Coinbase Premium (which measures the onshore spot price premium), during the three peak phases of BTC (November 2024–January 2025, April–August 2025, early October 2025), it maintained a positive premium. This indicates that US spot funds, represented by Coinbase, are genuine and continuous buying power. Meanwhile, Binance BTC reserves during these peaks increased significantly—precisely when offshore traders are selling at highs.

On the surface, it looks like capital is flowing in, but in reality, different types of funds are hedging against each other. US funds come from institutional long-term allocations, while international funds are mostly short-term speculators seeking profit-taking. The former is passive, the latter active in reducing positions. This divergence itself indicates that the true structure of market marginal participants has undergone a fundamental shift.

In the futures market, this divergence is even more pronounced. Offshore futures positions represented by Binance BTC contracts continued to rise during the peaks, with leverage increasing. Even after a flash crash in mid-October, they quickly recovered to historic highs. These are high-leverage speculators desperately maintaining their positions. In contrast, CME futures (US onshore) have been steadily declining since early 2025, with no synchronized rebound during BTC’s new highs.

Why is this happening? Because the “smart money” in the US—hedge funds, professional arbitrageurs—have already seen through the weakness of this bull market. They are voting with their actions: reducing positions. The performance of the CME options market further illustrates this. When BTC first broke $120,000 in August 2025, Deribit DVOL (implied volatility) was at a low. The new high prices did not garner risk premiums in the options market—an indicator that market participants are collectively bearish on risk.

The Illusion of “Foolish Money” Institutions

Entering 2025, the abolition of SAB 121 and the implementation of FASB fair value accounting provided a compliant basis for institutional holdings. Subsequently, DAT (Digital Asset Trust) and Bitcoin ETFs became the new “structural buyers”.

But a closer look at these “institutional participants” reveals issues. These institutions are not investing with their own funds but are engaged in capital arbitrage games.

Take MSTR and similar DAT companies: their logic is simple:

• When the company’s stock price has a premium over its BTC holdings, they issue at-the-money (ATM) shares or convertible bonds
• The proceeds are used to buy BTC, pushing up per-share Bitcoin value, further supporting the premium
• The more it rises, the easier the financing, creating more incentive to buy

MSTR’s $3 billion convertible bond issuance in Nov-Dec 2024 and subsequent purchase of over 120,000 BTC at an average cost above $90,000 exemplify this “buy more as it rises” mechanism. This is not marginal buying; it’s arbitrage. Once the premium narrows, these “institutional buyers” will turn into the most aggressive sellers.

As for ETF investors, detailed data is even more disappointing. Institutional (13F filers) holdings account for less than a quarter of the ETF’s total AUM, mainly financial advisors and hedge funds. The former are passive buyers, but their scale is limited; the latter are price-sensitive arbitrageurs, who have collectively reduced holdings after Q4 2024, with trends closely aligned with CME open interest. Despite the apparent popularity of ETFs, the actual marginal contribution is limited.

Retail Absence: The Divergence of Wealth Effect

The wealth effect in 2025 differs from previous years. US markets (S&P +18%, Nasdaq +22%), Nikkei (+27%), Hang Seng (+30%), KOSPI (+75%) all hit new highs. Precious metals also performed strongly—gold +70%, silver +144%. But the crypto market? Not only did it fail to benefit from this wealth effect, it has become a “forgotten corner”.

More painfully, new retail entrants are not trading BTC but rushing into emerging speculative scenes—Polymarket and Kalshi’s macro-political betting, zero-DTE options casino experiences, or even directly betting on KOSPI and US stocks.

What does this reflect? The crypto market has lost its appeal to incremental retail investors. Without new marginal participants, there are no continuous buyers. The high-level buyers (like MSTR financiers) will only cut losses when premiums narrow. This explains why, even as BTC prices rise, on-chain active addresses and trading activity decline.

The Gradual Emergence of Sellers

Meanwhile, a strong selling pressure is forming.

The first wave of sellers is early whales. Galaxy Digital disclosed in its 2025 financial report that between July and September, they completed the partial sale of over 80,000 BTC on behalf of an old-school BTC holder. Who are they? OG-level HODLers who bought before 2017. They chose to sell at the end of 2025 because mature BTC wrapper products (like IBIT) provide perfect liquidity channels. Using IBIT to replace native BTC holdings not only improves liquidity and security but also allows entry into the broader TradFi world for asset rotation.

The second wave of sellers is miners shifting focus to AI. This cycle has seen the most sustained and largest decline in miner reserves since 2021. By the end of 2025, miner reserves stood at about 1.806 million BTC, with hash rate down 15% year-over-year. But the key change isn’t production reduction; it’s motivation shift—miners are no longer just selling to cover electricity costs but are preparing for AI-era capital expenditure.

Major miners like Bitfarms, Hut 8, Cipher, Iren are transforming mining farms into AI data centers, signing long-term (10-15 years) compute power leases. Several are transferring BTC worth about $5.6 billion to exchanges. Even Riot, which has maintained a long-term holding strategy, announced in April 2025 that it would start selling monthly production. By 2027, about 20% of miners’ power capacity is expected to be repurposed for AI.

The third wave of sellers is judicial authorities. Large-scale fraud cases have led to thousands of BTC being seized, which eventually flow into government disposal channels, creating potential pressure.

When these three seller groups appear simultaneously, the marginal transaction power shifts dramatically—sellers far outweigh buyers.

The Crisis of Passive Allocation

Bitcoin is undergoing a profound transformation: from value discovery-driven active trading dominated by crypto natives to passive allocation and balance sheet management represented by ETFs, DAT, and sovereign funds.

This appears to be a victory of “mainstreaming,” but in reality, it is hidden risk accumulation. As more BTC circulation is locked into DAT stocks, spot ETFs, structured products, the underlying asset—Bitcoin itself—is becoming a “risk asset component” weighted into portfolios. Its correlation with high-beta tech stocks in the US has significantly increased (amplifying capital flows), but it lacks an independent valuation system to support its intrinsic value.

Even more dangerous, this high degree of financialization introduces systemic vulnerabilities:

• Narrowing of DAT arbitrage space could trigger large unwinds
• Collateral discounts may cause cross-market credit crunches
• Macro liquidity tightening could simultaneously hit all high-beta assets

All these risks share a common trigger—the fragility and flight instinct of marginal participants.

2026: The Reallocation of Marginal Power

Looking into early 2026, as BTC falls from its all-time high of $126K to the current $87.87K—nearly a 30% drop—a key question arises: who will become the marginal buyer at this level?

The traditional four-year halving cycle has been broken. Future dominant factors will come from two axes:

• Vertical axis: macro liquidity and credit environment (interest rate policies, fiscal spending, AI investment cycles)
• Horizontal axis: DAT/ETF premiums and valuation levels

Within this two-dimensional framework, the market may cycle through several quadrants:

• Loose monetary + high premium: FOMO-driven boom, similar to late 2024–early 2025 environment
• Loose monetary + discount: macro relatively friendly but financial instruments undervalued, suitable for structural rebuilding by crypto natives
• Tight monetary + high premium: highest risk, most prone to violent unwinds of DAT leverage
• Tight monetary + discount: true cycle reset

The most probable path in 2026 is a gradual shift from the right side (loose + high premium or loose + discount) toward the left side. But during this process, the distribution of marginal participants will undergo fundamental change.

Key institutional variables are also brewing: the implementation of SFT clearing services and 24/7 tokenization by DTCC will further advance Bitcoin’s financialization, making it part of Wall Street’s foundational collateral. The liquidity gaps caused by time lags will be smoothed out, but leverage limits and systemic risks will also rise—a double-edged sword, with marginal participants as the biggest victims.

AI trading entering a “high expectation consumption phase” is also noteworthy. Signs have appeared in late 2025 that AI leaders with strong performance are showing muted stock responses; exceeding expectations no longer guarantees linear gains. As a high-beta tech factor, BTC’s ability to continue riding the AI capital expenditure and earnings upgrades will face a stern test in 2026.

The True Next Step

When price is no longer the sole indicator, the real test for the crypto market has just begun.

Bitcoin, with its 17-year history and price surpassing $100,000, has established this young asset as a strategic reserve at the national level. But the next journey is far from over. The true winning strategy for crypto assets lies not in price but in whether they can transition from passive allocation to active utilization.

If in the coming years, the crypto track can serve as the only super-sovereign and global liquidity infrastructure, generating substantial cash flows, real users, and balance sheets, allowing ETF and DAT gains to flow back on-chain, then all the current concerns about “missing marginal participants” will not mark the end of a bull market but the true beginning of adoption.

From “Code is law” to “Code is eating the bank,” the crypto revolution has endured its most difficult 15 years. The birth of a new order requires new marginal participants—not retail traders chasing quick gains, not arbitrageurs cashing out, but genuine believers in this revolution willing to build lasting value. Their arrival will be the true marginal signal of the next bull market.