Coinbase Institutional has identified several market forces that explain Bitcoin’s latest price drop, even as conditions that typically favor risk assets are reappearing. The firm notes that with quantitative tightening concluding and the Federal Reserve potentially re-entering the bond market, the recent outflow of cash from financial markets might be abating.
Despite these potentially favorable macro conditions, Bitcoin has fallen below key support bands that are indicative of a bull market, which Coinbase highlights as a technical warning. Concurrently, options market positioning has shifted towards a more bearish sentiment, suggesting that traders are now hedging against further price declines rather than anticipating a rapid recovery.
Furthermore, Coinbase observes that long-term holders, often referred to as “OG” whales, have been selling their holdings during this period of weakness. This coincides with significant outflows reported by spot Bitcoin exchange-traded funds. Additionally, digital asset traders (DATs) appear to be reducing their activity, contributing to downward pressure on prices.
In light of these market dynamics, Coinbase Institutional advises that the higher-probability trading strategies currently favor entering positions on confirmed breakouts rather than attempting to buy dips in a falling market, a strategy often described as trying to “catch a falling knife.”
Wealth Disparity and AI Trends Influence Crypto Demand
Coinbase Research attributes the recent volatility in the cryptocurrency market to a growing divergence within the U.S. economy. The report indicates that a significant portion of the recent negative sentiment surrounding digital assets stems from macroeconomic concerns, including inflation, the risk of recession, and the Federal Reserve’s upcoming interest rate decisions scheduled for December 10. However, the U.S. economy continues to show resilience, growing at an annualized rate of 3.8 percent in the second quarter of 2025, following a slight contraction earlier in the year. This suggests that headline economic data alone does not fully explain the pressure on risk assets.
Analysts describe a “K-shaped” economic pattern, where higher-income households hold the majority of financial assets, including cryptocurrencies and stocks. Coinbase points to estimates indicating that the top 10 percent of U.S. households own nearly 89 percent of domestic equities, reinforcing the notion that market movements are often driven by the actions of a relatively small investor base.
The report also examines the dual role of artificial intelligence. On one hand, AI is enhancing labor productivity and boosting corporate profits, which can positively influence stock prices and, by extension, the demand for digital assets. On the other hand, reports of job cuts affecting white-collar professions and increasing pressure on middle management can create anxiety about future income, potentially limiting the capital that flows into volatile assets like cryptocurrencies.
Given this complex interplay, Coinbase states that it is still too early to establish a robust statistical correlation between AI-driven job losses and Bitcoin’s returns. The available data spans only a few years, and simple regression analyses show limited explanatory power. For the time being, the firm observes that upper-income investors who benefit from AI-driven market growth may continue to allocate a portion of their gains into instruments such as spot Bitcoin exchange-traded funds, particularly while substantial amounts of capital remain invested in U.S. money market funds.