Bitcoin’s Significant Risk Exposure (Part 1)

Nakamoto 2025-11-9 12:54 66693人围观 BTC

Introduction: Jeff Park is a partner and chief investment officer of ProCap BTC. In this conversation, we dive into the current Bitcoin market cycle—why market sentiment has changed, whether younger investors are losing interest, and where the next wave of buyers might come from. Jeff also analyzes how macro factors (such as interest rates) and micro market dynamics work together to influence Bitcoin's movements, and responds to Scott Bessent's explosive tweet that may mark a turning point for the crypto market.

Why is Bitcoin price falling?

Host: I think a good starting point is to start with price. Bitcoin is not only trading sideways right now, it’s actually falling. It recently dropped to $101,000.

This really doesn't look like a "bull market." Many people expected the fourth quarter to be good. Over the past 8 to 10 years, the average fourth quarter gain was almost 60%. People's expectations are high, but the reality is far behind. And "the essence of unhappiness is the gap between expectations and reality", so now everyone is very depressed online. What happened? Why doesn’t Bitcoin rise?

Jeff: I really understand the sentiment of the crypto community and I feel the same way. The fourth quarter is generally a good time for crypto, for many reasons. October in particular has traditionally been a strong month, but not this time.

I think this is the result of the interweaving of multiple factors - including the macro level, the micro level, and the most fundamental factor: this market is always dominated by structural supply and demand, and we need to understand these dynamics.

On a micro level, there was a massive liquidation in October, one of the largest ever. I think some trading accounts and exchanges are still dealing with the trauma of this process and still recovering.

People did suffer wealth losses. And there is also a part of the worry that the infrastructure itself may still have hidden risks. If there are still "sunken corpses that have not yet been discovered", then risk appetite will further decline.

We have already seen this happen, such as last week when the DeFi protocol Balancer was attacked. It is one of the best-known multi-asset automated market makers, but it has now lost hundreds of millions of dollars. Such attacks would have caused a huge stir in the past, but now they are drowned out by the frequency of such incidents.

There’s also Stream Finance, which was also affected earlier this week, affecting a number of protocols, including some blue-chip projects like Morpho. Another loss of hundreds of millions of dollars. Just before we entered the studio, Moonwell was also revealed to have been attacked.

These ongoing DeFi vulnerabilities and attacks have severely damaged market confidence. People are becoming increasingly risk-averse at a micro level.

At the same time, there is a lot of uncertainty at the macro level. Global capital markets are experiencing significant fluctuations. Although the Federal Reserve's signal on whether quantitative tightening (QT) is over has been hinted for a long time, this announcement is still a bit sudden, and many people are still a little unprepared.

In addition, expectations of a rate cut in December have returned, but it is uncertain whether it will actually be implemented. The superimposition of the two makes the macro level very unclear. Some liquidity problems have also begun to emerge, which is why the Federal Reserve has accelerated the pace of ending QT.

But most importantly - new investor fatigue is becoming increasingly apparent. They expected to make substantial gains, but their expectations fell short as the market continued to sell off.

The advantage of Bitcoin is that the data on the chain is highly transparent and we can track many indicators. Although the introduction of ETFs has blurred this picture a bit, because ETFs leave no trace on the chain, small and large buyers are still active on the chain, and we can still see trends.

What’s more concerning is this: If you look at “whales” (accounts holding 1,000 to 10,000+ BTC) and so-called “humpback whale” addresses, they still control about a third of the Bitcoin supply – about 6 million to 7 million Bitcoins are controlled by this group of large accounts.

The "Xiami Accounts" and "Crab Accounts" (that is, those small accounts holding less than 1 BTC or 1 to 10 BTC) only hold about 4 million Bitcoins in total, which is far less than the large accounts. This market structure is very unbalanced, and large players can easily manipulate prices.

In fact, these large investors have been selling continuously since 2022. They did not just sell in the near future, but have been steadily reducing their positions for a long time.

What’s even more shocking is that with the launch of ETFs, small investors no longer buy on the chain.

If you look at the trends of "Xiami Accounts" and "Crab Accounts", they steadily accumulated Bitcoin before, but began to stagnate in 2024, and then the number of positions even began to decline.

To me, this is a very worrying sign.

If it is just that the growth rate has slowed down, it can also be understood that they invested money in ETFs. But if the numbers themselves are declining, that suggests younger, smaller investors may be exiting the market.

Host: Do you think they really quit their on-chain positions and turned to ETFs, or did they stop buying them at all? After all, ETFs “hide the data behind the scenes” and cannot see it.

Jeff: I thought so at first. I thought there was a certain substitution effect. In particular, there is growth in some medium-sized wallet addresses - for example, the number of accounts with a total currency holding amount of less than 100 million US dollars is growing, which is obviously the capital behind ETFs.

But I still have reservations. If I were a young person, I believe I would still be more inclined to hold coins myself rather than through ETFs.

I’m not talking about financial advisors or Wall Street professionals (ages 35 to 45), but people in their late 20s to early 30s who are new to the crypto space. They usually open their own Coinbase account to buy coins, especially for purchases below 1 BTC (under $100,000).

If there are really young users behind these accounts, I think they are more inclined to hold positions on the chain.

This group of people still cares about the "decentralized belief" of encryption and the "meaning of participation." They don’t show off by saying “I bought an ETF exposure.” For them, that is not a source of pride.

So when I see these accounts dwindling, I get concerned.

This is of great significance to me and is even an existential concern - because the reason why older people buy Bitcoin is because they believe that younger people will eventually take over. This is the core "reflexivity" in Bitcoin investment logic: the older generation buys it because young people love Bitcoin and they want to participate in this intergenerational wealth transfer.

But if young people stop buying and only old people are left buying, young people will not participate. They will opt out. If young people start to lose interest because Bitcoin is no longer volatile and there are more other speculation options (such as prediction markets), that is a real red flag.

All of these are vying for the attention of young people. If they stop participating, then we're really in trouble.

Competitive trends: AI, prediction markets and other investment opportunities

Host: Let’s talk about how attention, energy and capital are being “split”. Not only are there many investment options competing within the Bitcoin ecosystem, but there are also a large number of emerging opportunities outside the ecosystem that are attracting investors.

In the field of Bitcoin, I can buy coins directly, buy ETFs, or invest in listed companies that hold digital assets. I also have the option of buying Coinbase stock. Now the entire ecosystem has developed a variety of exposure methods - what investors have to think about is: "I want to participate in this field, how should I participate?" ”

Opportunities outside the ecosystem are also growing rapidly, such as prediction markets and artificial intelligence. Nowadays, many people are not only exchanging part of their Bitcoin funds to invest in AI, but they no longer invest a penny in Bitcoin at all, and instead invest all new capital in AI companies, large cloud computing manufacturers, etc.

So, what can help you regain your confidence in the face of these trends? In other words, when you see more and more opportunities in the market, what can alleviate your worries? While broader market access is a good thing, it sounds like you think this is not just a short-term phenomenon, but may evolve into a long-term trend -- one that deserves our continued attention.

Jeff: I think the investment thesis for Bitcoin often changes rapidly based on price movements - it always has. Once prices perform well, attention and interest quickly return.

So we do need to realize that investment sentiment is path dependent. But there is no denying that there are now more alternative investment options than ever before, a result of rapid growth elsewhere in the economy as a whole.

In my opinion, AI and Bitcoin are actually "two sides of the same coin" - they are essentially related to energy and computing power.

If you want to diversify your investment strategy, not just by holding Bitcoin, but by investing in the infrastructure behind it, such as data centers - then it is understandable that you invest in the AI track, especially in the context of increasing support at the national and macro levels.

There are structural tailwinds here. Many people are quick to call AI a bubble, but I think those who are carefully observing this trend will see that there are every indication now that this structure will last longer than we think.

Bitcoin is in an awkward stage at the moment - I think it is now a "barbell-type" investment logic:

On the one hand, it is a real "cyberpunk currency" and an ideal tool to resist state intervention, so it has its spiritual value foundation.；
But on the other hand, it is increasingly accepted by institutions and governments, and may even become part of the global financial system.

Bitcoin is now a bit "riding on the fence" - it has neither fully become a free currency constructed by idealists, nor has it truly been integrated into the national strategic system.

For example, the Bitcoin ecosystem has not established enough practical applications to make it valuable as a cyberpunk currency. At the same time, although the US government has "participated in and promoted" this field to some extent, it is far from in-depth. More often than not, it is like a gesture and a political "performance" rather than a substantive strategic push.

Looking back at the AI track, we know very well that it has been recognized by the national level as a "strategic focus of national sovereignty" and is the commanding heights in a new round of financial and technological wars. For example, asset management agencies under the U.S. government began to purchase shares of data center companies in large quantities - these are strong structural entries. And we don’t see the same level of state support in Bitcoin.

So young people are confused - what should they vote for? What they care about most is actually only two things: Investment must have "meaning" - young people have always attached great importance to the values and mission behind investment. This sometimes even leads them to compromise on investment returns (as is the case with the rise of ESG investing).

Secondly, they also want to make money. And when Bitcoin fails to satisfy both of these points, it begins to lose its aura.

I think we’re at a stage now where Bitcoin is accelerating its “institutionalization,” but what does that mean? What does it really mean for the ecosystem? This is the issue that young people are most concerned about today.

How Millennials and Gen Z view the financial system differently

Host: Let’s talk about a phenomenon that I’ve been thinking about—Millennials. I think you and I are about the same age, and we were too young to have a lot of assets when the global financial crisis hit, so while we understood what was going on, we didn't take a real big hit financially. But the psychological impact it brought was very profound, and to some extent it also created the group of "Bitcoin believers".

At that time, although not everyone in the "Occupy Wall Street" movement took to the streets in person to hold signs and protest, it was a manifestation of intergenerational sentiment: Was our generation "scammed" by the previous generation? Is this system fair?

I’m curious, does Gen Z feel similarly? The difference is that Millennials use Bitcoin as an “emotional outlet,” while Generation Z’s response is more toward “political socialism.” They are actually saying in their hearts: “This system is not suitable for me. ”But the direction is different - Millennials mainly target the financial system ； Generation Z is a broader social structure, of which finance is only a part.

Jeff: You're right, that distinction makes a lot of sense. You know there is a buzzword on the Internet now called "Rich but not rich enough", which is the state of living in "limbo".

For example, you are wearing a $5,000 Rolex, but you know that it is not in the same class as the $50,000 Rolex.

We call this the “first class but not private jet” feeling of wealth.

Millennials as a whole are kind of like this. We did experience the financial crisis at that time, but we were still young and had not been completely involved, so we experienced it partly personally and partly from the perspective of bystanders.

We understand the mechanics of currency debasement and believe this is a core issue we need to address.

But moving forward to the next generation, Generation Z doesn’t care about “currency devaluation” at all.

I have talked with many young people from Generation Z, and they don’t think this is a big issue that needs to be concerned about at all. They have neither a sense of involvement nor a desire to solve the problem.

Host: You know what I would associate with that? Do you still remember the first time you learned about C-SPAN (U.S. Congressional Television)? At that time, you might have heard about it from your parents, grandparents, or neighbors, and thought, “Wow, this is a channel only older people watch. ”

I think financial topics are like C-SPAN for Gen Z: they know it exists, but they have absolutely no interest.

Jeff: I don't blame them. Even we ourselves (Millennials) sometimes deceive ourselves, saying we are going to “fix Social Security” but then going home and knowing deep down that it will never be solved. We are just acting rational, but we actually know in our hearts that there is no chance.

So each generation is actually becoming more sober - Generation Z no longer cares about the issue of "system collapse". They have acquiesced that everything is rotten and "commonly rotten", and this is no longer their battle. They prefer to pursue their own sense of meaning and community. I think this psychological tendency also contributes to the rise of populist sentiment.

But Bitcoin can also find new hope in it - if it can return to its original "cyberpunk" roots, it can still attract the attention of the younger generation.

That’s exactly the problem: Bitcoin has lost some of its idealistic luster, especially after it was embraced by mainstream finance and even sovereign states.

But if you can reposition Bitcoin into issues that young people really care about, such as "technical sovereignty" and "privacy awareness," it will still have a strong appeal.

Young people today are far more privacy-conscious than we were back in the days when Facebook was just getting started. At that time, we were willing to "trade privacy for convenience", which was a social contract by default.

But they are not. They know how their data is monetized, and they will choose not to give up their data sovereignty easily because they have lived in this digital surveillance environment since they were young.

So, if you can position Bitcoin as an extension of “populist consciousness,” a fairer, more autonomous technological choice, it can be revitalized and become a new tool of faith for this generation.

But the reality is that the image of Bitcoin is now more and more like "a tool of internal fighting in the financial circle." What people see is a Wall Street version of Bitcoin, the self-operation of a group of stakeholders. Do you really want a billionaire to be the face of Bitcoin?

Of course, I'm happy to see Ray Dalio support Bitcoin, but I'm also conflicted: I'm not sure I want him to represent the spirit of Bitcoin, because then it might not be attractive to Gen Z and Gen Alpha anymore.

(superior)

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Bitcoin’s “Silent IPO”: This consolidation may not be what you think (Part 1)

Bitcoin’s “Silent IPO”: This consolidation may not be what you think (Part 2)

Compiled by: The song never ceases