Every disaster in the financial market is not something that suddenly falls from the sky.

Written by: Fugui

There are two types of people in this world who are the best at telling stories. One is novelists, and the other is Wall Street analysts. The difference is that novelists know they are weaving stories, while analysts often do not. The institutionalization of Bitcoin has been a story told for two years, moving people to tears. But behind this story lies a question that no one wants to answer: When everyone rushes through the same door, can that door actually lead them out?

BlackRock's Appetite

On April 22, 2026, the on-chain data platform Lookonchain tweeted: IBIT's holdings reached 806,700 BTC, valued at approximately $6.37 billion, setting a historical high. Upon the release of this news, crypto Twitter was in a frenzy as if BlackRock had picked up the tab for everyone.

However, if you compare this number with Bitcoin's total supply of 21 million, you will obtain a rather unsightly ratio: 3.84%. One fund consumed nearly 4% of the global Bitcoin supply.

IBIT is not fighting alone. According to the latest data, U.S. spot Bitcoin ETFs collectively hold approximately 1.3 million BTC, accounting for 6% to 7% of the circulating supply. Among these, IBIT captures about 49% to 62% of the ETF market share, with Fidelity's FBTC significantly lagging behind in second place, and the remaining funds together barely make a backdrop.

In Q1 2026, IBIT saw a net inflow of about $8.4 billion, with 48 of the 62 trading days being net inflows, and even when the price dropped from about $87,000 to $66,000, it continued to buy. This stance has been interpreted by many as the "power of faith." However, everything has two sides; the other side of steadfast buying is steadfast holding, steadfast not selling — meaning the BTC that can be freely traded in the market is being systematically locked away in custodial wallets.

Liquidity is something that can be consumed.

Subscription Does Not Equal Price Discovery

There is a popular saying in the market: ETF subscriptions drive market makers to buy spot BTC, buying actions push prices up, price signals feed back into the fund's net asset value, creating a positive feedback loop. It sounds reasonable, like a finely tuned machine.

But this machine has a hidden condition: market makers execute buy orders using algorithms like TWAP or VWAP. In plain terms, it means: regardless of whether the price is reasonable or whether the market depth is sufficient, purchases must be completed within a designated time window. This is called "rigid demand."

What is truly needed for price discovery? It requires someone willing to sell at high prices and someone willing to buy at low prices; it needs a two-way game rather than a one-way mechanical buying action. When IBIT occupies nearly sixty percent of the entire ETF market, and its daily cash flow can determine the direction of the entire market, the so-called "subscription equals pricing" actually becomes: When BlackRock says buy, the market goes up; when BlackRock stops, everyone looks at each other.

On March 11, 2026, a data point illustrates the problem: that day, IBIT experienced a net inflow of $115.5 million, while the total net inflow of all 11 U.S. spot Bitcoin ETFs was $115.4 million. IBIT alone absorbed over 100% of the market net flow, while the other 10 funds collectively saw a net outflow.

This is not price discovery; this is price monopoly. When the market has only one voice, that is not called consensus; it is called a solo act.

The Lesson from GBTC

To understand the speed at which concentrated holdings can turn against you, the best textbook is the history of Grayscale's GBTC.

In January 2024, GBTC transitioned from a closed-end trust to a spot ETF, which in theory is a good thing: investors could finally redeem at net asset value. But GBTC's management fee was 1.5%, while other ETFs during the same period generally ranged from 0.2% to 0.9%, and this cost discrepancy made redemption a rational choice.

What happened? In the seven trading days after the conversion, GBTC experienced a cumulative outflow of $3.45 billion, with the largest single-day outflow exceeding $640 million. Market makers engaging in redemptions, acquiring BTC, transferring it to Coinbase, and selling it on the spot market, created a mechanical chain that kept pressure on prices.

At that time, the market held up. The reason was that the other 9 new ETFs were simultaneously seeing substantial net inflows, with new funds hedging against GBTC's selling pressure. This was a key premise: someone was picking up the slack.

Now IBIT is much larger than the peak size of GBTC back then, and the other ETFs combined are not even half the size of IBIT. If IBIT experiences sustained large redemptions, who will pick up the slack? Fidelity's FBTC? That would be a joke.

On April 1, 2026, IBIT saw a single-day net outflow of $8.65 billion, one of the largest single-day redemptions in the fund's history. That day, the entire market's ETFs collectively experienced a net outflow of $173.7 million. From April 27 to 29, cumulative outflows totaled about $500 million over three consecutive days, putting pressure on the market.

This is not a disaster, but it is a rehearsal. A rehearsal without a disaster is often more dangerous than the disaster itself because it leads people to underestimate the width of the door.

CME's Chronic Blood Loss

If IBIT's concentrated holdings are a knife dangling from the ceiling, then the sustained shrinkage of the CME futures market is akin to cutting the strings that support the knife, one by one.

From 2024 to early 2025, a large number of institutions engaged in a trading strategy known as basis trade: buying spot ETF longs while shorting futures on CME to lock in the price difference, yielding annual returns of 15% to 20%. This was a steady, risk-free profit that attracted institutions, pushing CME's Bitcoin futures open interest from $12 billion at the end of 2023 to over $21 billion in January 2025, making CME the largest Bitcoin futures exchange in the world for a time, surpassing Binance.

Then the basis began to narrow. As BTC fell from its peak of $120,000, the price difference between futures and spot shrank to around 5% annually, just slightly above the 4.5% U.S. risk-free interest rate, leaving nothing after accounting for capital costs. The arbitrage logic collapsed, and institutions began to withdraw systematically.

As of April 2026, CME's Bitcoin futures open interest had dropped to around $7.2 billion to $8.4 billion, marking a 14-month low, and monthly trading volume halved from the peak, with Binance reclaiming its position as the world's largest Bitcoin futures exchange — this change in leadership signifies that "institutional money" is quietly retreating.

What impact does this have on market structure? When market makers undertake ETF subscriptions and redemptions, the most important hedging tool is CME futures. When CME is deep, market makers dare to offer aggressive two-way quotes; when CME is shallow, market makers must narrow their orders, widen spreads, or even significantly reduce liquidity supply.

Currently, the situation is as follows: on one side, IBIT holdings are still near historical highs, with daily subscriptions reaching hundreds of millions; on the other side, CME open interest is at a 14-month low, and the capacity of hedging tools is severely inadequate. The "exposure waiting to be hedged" in the spot market is accumulating at a speed far exceeding that of the futures market's capacity, like an increasingly large balloon, inflating much faster than it deflates.

The Naked Running of Market Makers

Putting these three matters together, one conclusion emerges: market makers are being forced to run naked.

In a normal market, the survival logic for market makers is delta neutral — receiving orders on the spot side while hedging on the derivatives side, aligning both sides and profiting from the midpoint spread without bearing directional risk. This system relies on one premise: the derivatives market must be deep enough to withstand transactions.

This premise is currently being undermined. The continued shrinkage of CME's open interest means that after market makers accept large subscribing and redeeming orders in the spot market, they find insufficient counterparties in CME futures for hedging. Large orders either can't be placed at all, or once placed, they distort the price, causing hedging costs to spike.

The only way market makers can cope with this situation is to narrow the scale of their operations, increase spreads, and reduce the depth of orders on the order book. In other words, market liquidity is subtly thinning.

Data is already reflecting this. In January 2024, the Bitcoin buy-sell spread on Coinbase was about 0.04%, expanding to about 0.11% by April 2026, nearly doubling. The depth of the order book (volume of orders within a 0.5% price range) shrank from about 45,000 BTC at the beginning of 2024 to about 18,000 BTC, a reduction of more than 60%. The average daily turnover rate for Bitcoin in the spot market dropped from 4.2% to 1.5%, the lowest since the 2018 bear market.

These figures were recorded while Bitcoin prices were relatively stable. Beneath the calm surface, the foundation of liquidity is being hollowed out.

Trigger Key

A liquidity crisis does not need a major piece of news; it only requires a catalyst, and then the mechanism will run itself.

The pathway is as follows: a macro event causes institutions' risk appetite to decline, IBIT begins to experience sustained net outflows, and market makers, after accepting redemptions, must sell BTC in the spot market. But with inadequate CME hedge capacity, all sell pressure is released on an already thin spot order book, causing prices to drop rapidly. The price drop triggers contract liquidations — the entire market's open interest still exceeds $90 billion, with perpetual contracts accounting for 80%, and an average leverage ratio exceeding 10 times, triggering a chain reaction as prices fall. The forced selling resulting from liquidations further depresses prices, leading to more redemptions, and the risk control systems of market makers trigger a halt in quoting, leaving large gaps on the order book, and the buy-sell spread expands exponentially, pushing the market into a liquidity vacuum.

The "night of terror" in October 2025 can serve as a reference: Bitcoin fell over 13% in a single day, with $19 billion in leveraged positions forcibly liquidated, and over 1.6 million accounts were closed, setting a single-day record for the largest liquidation in crypto history. At that time, market makers had the CME cushion. Now, that cushion has thinned considerably.

Of course, overall inflows in April were strong. In April 2026, spot Bitcoin ETFs saw a net inflow of about $2.44 billion, the strongest month of 2026 to date, with IBIT taking about 70%. This is not a collapse; it indicates that institutional funds are still present, and the narrative is still intact. But this is precisely where the problem lies: the more funds pile into IBIT, the higher the concentration of holdings, which increases the impact radius during future redemptions, thus increasing the volume that market makers need to hedge, while CME's capacity continues to shrink.

Risks are accumulating bit by bit, like a structurally flawed dam — everything seems fine under normal circumstances, but once rainfall exceeds a certain threshold, the dam can give way overnight.

The Other Side of Institutionalization

The crypto market has spent two years constructing the myth of "institutional entry," implying that it has matured, stabilized, and become safe.

However, maturity comes in two forms. One is decentralized maturity, where holders are distributed, without single points of risk, and each person is an independent decision-maker. The other is centralized maturity, where a few institutions dominate pricing, the market structure is clear, and regulatory conditions are friendly; yet it places the fate of the market in the hands of these few institutions.

ETFs bring about the latter form of maturity. About 2.3% of addresses control over 95% of the circulating supply, and the pricing impact of large trades through ETFs has been quantified — some studies even estimate that Strategy Inc.'s persistent buying has pushed BTC prices up by $10,000 to $20,000. The actions of a single entity can have such a significant impact on prices; this does not constitute an efficient market but rather a transfer of pricing power.

The original intention behind Bitcoin's creation was peer-to-peer, decentralized, and censorship-resistant. Now, where is it headed? Toward Coinbase custodial accounts, toward BlackRock's balance sheets, toward Federal Reserve meeting minutes. Can the story of "anti-inflation" hold water when the Federal Reserve raises interest rates? The answer was already given in 2022.

This is not to say that ETFs are bad; they have brought real incremental capital and compliant channels. But everything comes with a cost, and the cost of institutionalization is structural liquidity concentration, which is an advantage in the upward trend but acts as an amplifier during downturns.

The Remaining Questions

The data is laid out, the logic is clear, so what should be done next?

The first thing is to watch for signals. Whether top ETFs like IBIT experience sustained net outflows for more than five trading days, accumulating over $3 billion, is a leading indicator of liquidity warning. CME futures open interest and basis levels act as real-time thermometers for market makers' hedging space. Order book depth and buy-sell spreads serve as barometers of the market's actual liquidity. Open interest and funding rates of perpetual contracts are gauges of accumulated leverage risk.

The second thing is to maintain awareness. Do not automatically translate "IBIT buying" into "BTC must rise"; these are two separate matters. Capital flow is executed passively in one direction, while prices result from a two-way game, with market makers' willingness to hedge and CME's market depth affecting both — and both variables are currently deteriorating.

The third thing is to accept uncertainty. There is no answer of “it will definitely explode,” nor is there a guarantee of "it will never explode." There is only the knowledge that structural fragility is accumulating, trigger conditions are narrowing, and cushions are thinning. Historically, every significant liquidity crisis has been followed by a review revealing “there were signals all along,” with the only difference being whether anyone read them beforehand.

During the GBTC incident, someone was there to pick up the pieces. Next time, it may not be the case.

Every disaster in the financial market is not something that suddenly falls from the sky. It has been on its way for a long time.

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