Market Note – Capital Crunch & Strategic Fault Lines

The global risk landscape has taken a sharp turn, with the latest U.S. tariff rhetoric triggering one of the most aggressive liquidity contractions since 2020. But while the headlines center on policy optics, we’re watching the real pressure points: capital flow disruptions, liquidity fractures, and behavioral capitulations across asset classes. Crypto, once again, is sitting at the fault line.

Liquidity Vacuum in Motion

Trump’s tariff-driven “Liberation Day” campaign is more than just political noise. It signals a strategic pivot toward dollar debasement, deflationary energy pricing, and monetary loosening—policies which, when paired with fiscal tightening, could kneecap short-term U.S. growth while igniting volatility across global markets.

TradFi indexes saw synchronized sell-offs, but digital assets—amplified by their sensitivity to macro flows—are taking an outsized hit. Since early Q1 2025, we’ve observed an aggressive deceleration in net capital inflows, with both BTC and ETH seeing monthly realized cap growth nearly flatline. This isn’t just profit-taking. It’s an exit of conviction.

Bitcoin vs Ethereum: A Structural Divergence

The data tells a clear story. Bitcoin has absorbed over $460B in realized cap expansion since the FTX nadir, with Ethereum lagging far behind at $60B. This disparity speaks to structural rotation: institutional preference, ETF exposure, and store-of-value narratives have decisively favored BTC. ETH, on the other hand, remains caught between narratives—yield-bearing asset, platform utility, or technology stock.

Ethereum’s underperformance isn’t just relative; it’s absolute. The ETH/BTC pair has collapsed 75% from its Merge-era peak, now nearing levels last seen before DeFi Summer. Notably, this cycle has produced zero sustained phases of ETH outperformance—an anomaly for any previous bull market. A changing regime? Possibly.

Measuring Exhaustion, Not Just Losses

Short-term holder behavior has flipped. Where capitulations in 2023 triggered violent unwinds, current loss-taking events—though still sizable—are diminishing in magnitude. That suggests one thing: sellers are thinning out.

Bitcoin’s drawdown from $83k to $74k triggered peak 6-hour losses of $240M, yet each subsequent dip is being met with more resilience. ETH shows a similar dynamic, though the scale remains heavier—realized losses recently peaked at $564M in a single stretch. This trend could mark the beginning of base formation, but only if macro shocks subside.

Altcoins: Collateral Damage Across the Curve

As liquidity evaporates, the far end of the risk spectrum gets scorched. Altcoins (excluding BTC/ETH/stables) have shed over $400B in value since December 2024. Unlike previous selloffs, this isn’t driven by sector rotation or narrative failure—it’s systemic. No subsector has been spared. From L2s to AI tokens, reflexive beta unwinds are now the dominant force.

The lack of idiosyncratic strength signals that passive capital has exited, leaving fragmented demand unable to hold floors. Without clear catalysts, and with Bitcoin dominance rising, altcoins may remain structurally weak unless BTC reclaims momentum leadership.

Critical Levels: What Needs to Hold

On-chain and technical signals now converge around one battlefield: $65k–$71k for BTC. This range marks confluence between active cost basis models and mean reversion levels. Below it, a majority of participants become net underwater—a psychological blow with potential reflexive impacts on sentiment.

The upper resistance at $93k remains the key hurdle to flip momentum back to the upside. Meanwhile, short-term holders’ cost basis sits just above current price. If price continues to reject this zone, expect deeper resets in positioning.

Enzac Takeaways:

BTC remains the institutional hedge. Liquidity favors Bitcoin, and structural divergence from ETH is likely to persist.

ETH is in a mid-cycle identity crisis. Without a clear role, it underperforms in both risk-on and risk-off conditions.