The Great Rotation: As Bitcoin Grinds Sideways, Capital and Users Are Choosing New
The Big Picture
The crypto market is caught in a state of profound divergence. While Bitcoin frustrates traders with a sideways grind that macro analyst Jordi Visser calls its “IPO phase,” a much deeper structural shift is unfolding beneath the surface. This isn’t a simple bull or bear market; it’s a period of deliberate reallocation, where capital, users, and developer focus are actively rotating away from established narratives and into new ecosystems, fundamentally reshaping the landscape.
Bitcoin’s IPO Phase: The Great Hand-Off
The Sideways Grind Explained
The current market malaise, marked by a “Fear” score of 37 on the Crypto Fear & Greed Index, has a compelling explanation beyond simple price action. Jordi Visser frames this as Bitcoin undergoing a classic IPO-style transition. Early believers and OGs are steadily distributing their holdings—”not in panic, but steadily”—while a new class of long-term institutional holders accumulates on dips. This transfer of ownership from “visionaries to the institutions” is creating the “sideways grind that drives everyone crazy,” a consolidation phase that mirrors what happens when lock-up periods expire for a newly public company.
This consolidation is not a collapse. As Visser notes, “Every dip gets bought.” This underlying strength is evidenced by strong fundamentals like ongoing ETF approvals, record network hashrate, and growing stablecoin adoption. However, the immediate result is frustrating for traders, with Bitcoin sealing its worst October performance since 2018 and spot BTC ETFs seeing significant outflows, including $191.6 million on Friday alone.
Conflicting Signals and Looming Volatility
This frustrating consolidation creates a vacuum filled with conflicting signals. While some analysts, like Joao Wedson, see the market in a final distribution phase before a potential cycle peak between $143,000 and $146,000, others like Michael van de Poppe believe we are still in the “early stage of the bull cycle.” The one consensus is that this quiet period is unlikely to last. Monthly Bollinger Bands have reached their most compressed levels in Bitcoin’s history, a technical setup that, according to its creator John Bollinger, suggests a massive volatility expansion is imminent.
The Capital Rotation: Following the Flows
From Majors to New Narratives
While Bitcoin chops sideways, capital is decisively on the move. A clear “capital rotation” is underway, with significant outflows from Bitcoin and Ether ETFs being reallocated into emerging ecosystems. Spot Solana (SOL) ETFs, for instance, recorded their fourth straight day of inflows, adding $44.48 million on Friday and bringing their total assets to over $502 million. In stark contrast, spot Ether ETFs bled $98.2 million the same day.
Vincent Liu, CIO at Kronos Research, attributes this trend to a growing “appetite for new narratives and staking-driven yield opportunities.” Investors are no longer content to wait for the majors to move; they are actively seeking returns and utility in alternative Layer 1s that offer different value propositions.
The Rise of the Utility User
This capital rotation is mirrored by a demographic one. As Louise Ivan, CEO of Ryder, points out, crypto’s user base is shifting from ideologically driven hodlers to pragmatic, utility-focused individuals in emerging markets. For users in the Philippines, Nigeria, and Vietnam, crypto isn’t about philosophy; it’s about necessity—specifically, remittances and small-value payments. This is why stablecoins like USDT and USDC now account for a staggering 40% of total crypto volume. These new users prioritize seamless UX and built-in security over the complexities of self-custody, a demand that protocols focused on utility are better positioned to meet.
The Infrastructure Wars: Choosing the Future’s Rails
State vs. Stablecoin
Beneath the market churn, a battle for the future of financial infrastructure is intensifying. On one side, state actors like the European Central Bank (ECB) are pushing centralized, permissioned systems. ECB President Christine Lagarde touts the digital euro as a “symbol of trust,” drawing sharp backlash from a crypto community that views CBDCs as tools for surveillance. The resistance is so strong that lawmakers in France and Germany have submitted proposals to ban CBDCs and embrace Bitcoin.
On the other side, the permissionless economy is iterating. According to Omid Malekan of Columbia Business School, bank-led experiments with tokenized deposits are “doomed to lose out” to overcollateralized stablecoins. He argues that tokenized deposits are siloed and lack the composability that makes stablecoins essential for DeFi. This view is validated by national initiatives like Malaysia’s new three-year asset tokenization roadmap, which explicitly plans to explore both tokenized deposits *and* stablecoins, acknowledging the need to engage with both models.
The Unseen Threat: Data Monopolies
Perhaps the most critical battle is the one most of the industry is ignoring. Ram Kumar of OpenLedger delivers a stark warning: while crypto obsesses over DeFi yields and price action, AI companies are building “permanent monopolies on human knowledge.” He argues that crypto is “catastrophically misallocating attention” by failing to build the decentralized data registries and attribution protocols necessary to counter the centralized control of AI training data. This fight over intelligence, he posits, is upstream of everything else, making victories in decentralized finance potentially irrelevant if the information environment itself becomes centralized.
Why It Matters
The current market is a deceptive calm before a storm of volatility and change. Bitcoin’s sideways consolidation is not a sign of a dead market but rather the quiet cover for a seismic reallocation of capital and priorities. The “Great Rotation” is in full swing.
Investors are moving beyond legacy assets in search of yield and new narratives. Users are flocking to platforms that solve real-world problems, prioritizing utility over ideology. The most critical battles are not about the next 10% move in price but about the foundational rails of our future financial and information systems. The winners of the next cycle won’t just be the assets that accrue the most value, but the ecosystems that successfully capture this rotating capital, serve the new wave of pragmatic users, and build the infrastructure to prevent the monopolies of tomorrow.
