Summary Near term, I am underweight on Bitcoin (BTC-USD) and the crypto ETFs, largely due to a trifecta that is pressuring the sentiment in this space. First, the Fed’s quantitative tightening, despite a likely dovish rate policy, is draining risk capital and dampening appetite for leveraged crypto trades. Second, I see significant institutional outflows and a failed 'digital gold' narrative that have driven a rotation from BTC into precious metals (until recently). Third, the pessimism is entrenched, and I don’t see near-term catalysts to reverse it. Burry's recent remarks on Bitcoin don't help from a sentiment perspective. That said, over the long term, I believe liquidity will eventually flow back into crypto, as it did in the past. In the meantime, I prefer to wait on the sidelines, because I don’t think the lows are behind us yet. Bitcoin (BTC-USD) is down close to 50% since the October 10 liquidity crash, and a good part of the Bitcoin ETFs have recently emerged in my screener in a bright red color. Today, Bitcoin experienced its biggest one-day drop since the FTX era back in November 2022. At $63.8k (at the time of writing this article), the recent selloff wiped out pretty much all the gains after the post-Trump-election rally. My rating on Bitcoin and, therefore, on the Bitcoin ETFs, varies drastically based on the timeframe under consideration. Looking at the near term, I am underweight this sector (if you can call it such). It is my view that Bitcoin didn’t sell off because markets suddenly forgot that lower rates can lift risk assets. I believe that there is a trifecta in place that's pressuring Bitcoin. First, even though the new nominated Fed Chair will likely be dovish, his policy on quantitative tightening is not encouraging for risk assets. Second, the momentum in fund outflows is high, and after the October 10 liquidation event, I think funds are rotating out of crypto straight into precious metals. And third, I see no positive catalysts ahead to change the pessimism, especially after the $70k support was broken today. That said, on a longer timeframe of 12-18 months, I believe that liquidity will (somehow) revert back into the crypto space. I am unsure what the catalyst will be, which is why I prefer to remain on the sidelines until I see a recovery in net inflows in the main Bitcoin ETFs. Understanding The Selloff How is it possible that the nomination of a new Fed Chair, with a very likely dovish policy, led to a crypto selloff? Aren't lower interest rates a tailwind for risk assets? Well, it turns out the answer is no. You see, there are two different policy levers. On one hand, you have interest rates, which are set mainly via the fed funds target range (currently at 3.50% - 3.75%). On the other hand, you have the Fed's balance sheet, which is affected by whether the Fed is doing quantitative tightening (i.e., letting assets roll off) or quantitative easing (i.e., buying assets). Given that Trump nominated him, I think there is little to no doubt on the direction of interest rates in the next few years. However, on the Fed's balance sheet side, Warsh recently said that the Fed should materially shrink its balance sheet. The Fed’s bloated balance sheet, designed to support the biggest firms in a bygone crisis era, can be reduced significantly . That largesse can be redeployed in the form of lower interest rates to support households and small and medium-size businesses. That's bad news for risk assets, like crypto. Why? In plain English: rate cuts make borrowing cheaper, but QT can make risk capital scarcer. So, even if the Fed cuts rates, if they are shrinking the balance sheet, reserves can keep draining from the banking system. In my view, this leads to less appetite for leveraged, high-beta trades. Based on Bitcoin’s double-digit selloff after the Warsh nomination on January 30, I don’t think I’m alone in thinking this way. The Institutional Bid Reversed After October 10, 2025 According to some analysis, over $3 billion was withdrawn in January alone from US spot BTC ETFs. Zooming out, the fund outflow across all major Bitcoin ETFs can be seen below: Coinglass Since the largest liquidation in crypto history (over $19B liquididated in one day ) after Trump threatened China with 100% tariffs and export controls on October 10, Bitcoin's spot price has been down by over 40%. In my view, the crash on October 10, largely dominated by liquidation cascades in leveraged crypto products like perpetual futures , spooked institutional funds. I strongly believe that the double-digit selloff on October 10 may have triggered some margin calls (two words you really don’t want to hear if you own a leveraged asset). Therefore, the sentiment in the crypto space is now permeated with fear of a similar event, on top of the QT stance of the newly nominated Fed Chair. Sentiment is low, and it is my view that in crypto, sentiment is what drives price action. Bitcoin Is Not The "Digital Gold" I have one chart for the crypto bulls to bust the narrative that Bitcoin behaves like a gold-like asset. Seeking Alpha The chart above represents the performance over the last 6-months of Gold and Silver spot price vs BTC-USD. In the same timeframe, the DXY (US Dollar Index) was down in the low single digits. This chart represents the third pillar of my thesis. Funds are realizing that Bitcoin doesn’t offer a hedge the way gold often does in stress regimes. I think this narrative gained traction between 2024 and mid-2025, after the emergence of US spot bitcoin ETFs (see a list in the image below). The fallacy is the idea that many investors treated these ETFs as proof that Bitcoin was becoming a portfolio asset alongside gold. Look at the performance of these ETFs in the past 3 months: FinViz They didn't. Also, you need to consider the profile of the investors on the bid side of these ETFs. Call me crazy, but I don’t think these are traditional, value-based, family-office-style funds. Therefore, the rotation out of crypto and into precious metals makes sense. What doesn't make much sense to me is the risk-off move in precious metals today. Seeking Alpha I mean, yes, there have been some geopolitical headwinds for precious metals after the scheduling of U.S.–Iran talks and the "very positive" telephone call between Trump and Xi. However, I don't think this warrants the selloff we have seen today. I see a clear disconnect, given that gold tends to outperform when risk assets don't. I will analyze this move in detail in an upcoming article. For now, the fact that both crypto and precious metals are down is a clear indication that investors (and speculators) are taking off risk from their portfolios. Speaking of speculators, I already explained why I mostly rotated out of tech into sectors that I haven't been in since my deep value investing days. Conclusion In the near term, I don't see any positive development that has the potential to turn around the pessimism surrounding Bitcoin. Adding fuel to the fire, Burry's recent report suggests that the selloff could intensify into a death spiral. He seems to mention Strategy Inc., and the possibility that another 10% selloff in Bitcoin price could pressure the largest crypto treasury in the world. I already discussed my thoughts on Strategy in a December coverage , where I stated the reasons why I didn't buy the dip. The stock is down over 40% since then, especially after today's selloff (Q4 GAAP EPS of -$42.93 while the stock is still trading at $106). All that said, looking at a timeframe of 12-18 months, I believe we may see a recovery in Bitcoin. Unless the US enters into a recession (highly unlikely, in my view), I think retail is going to buy the dip. Eventually, funds will follow, and another wave of irrational exuberance may begin again. The chart below is good proof of how cyclical this crypto asset is. Trading View Today, I simply don’t see the catalyst to turn around this selloff. Therefore, I’d rather stay on the sidelines and watch the price action in precious metals, along with Bitcoin ETF flows, over the next few weeks/months.