Recent market crashes have been brutal for investor sentiment, particularly for those exposed to crypto.
One of the ways many traditional investors entered the space is through exchange-traded funds (ETFs) tied to Bitcoin (BTC). Retirement accounts, financial advisors, and first-time buyers suddenly had easy access to Bitcoin without touching a crypto exchange.
Now, many of those same investors are more interested in exiting than staying.
People who would normally be stepping in during a dip are hesitant to do it. And the data shows why.
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Nearly half of Bitcoin is underwater
At recent prices around $62,800, nearly 9 million BTC, about 45% of all circulating supply, is worth less than what holders paid for it, according to Glassnode data reported by Bloomberg on Feb. 25. At the lows, almost half the entire supply was underwater.
Bitcoin is now five months into a decline that has erased roughly half its value from the October peak above $126,000. But this hasn't been a dramatic crash followed by a sharp rebound.
Instead, it has been a slow bleed. First, it slipped below $100,000, then it broke $90,000, then $80,000. Now at press time, it was trading at $67,373.31, struggling to break past $70,000 for almost two weeks.
Instead of one big panic, investors are enduring these repeated small losses, which breaks their confidence.
Each sale at a loss removes a potential future buyer, and each rally is met with supply from investors who simply want out near breakeven.
The result? Lower highs, weaker bounces, and shrinking conviction.
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The ETF effect cuts both ways
Bitcoin ETFs were supposed to signal maturity. Wall Street had arrived. The asset was mainstream. The narrative shifted from speculation to institutional validation.
Now that infrastructure is working in reverse.
Spot Bitcoin ETFs in the U.S. have seen nearly $2.5 billion in outflows this year, as per SoSo Value data. Those ETF buyers who entered at an average price near $83,956 are sitting on paper losses of roughly 23%.
JonesTrading Chief Market Strategist Michael O'Rourke said that selling in this scenario makes sense.
"The advent of Bitcoin ETFs created a much wider investor base that helped fuel the run-up, but these investors are also less committed to the asset."
Still, it's worth noting that total Bitcoin held by ETFs is down only about 6% from its October high, despite the 50% price drawdown. That suggests outflows haven't turned into mass panic.
Another concern is the behavior of large holders or "whales."
They have reportedly shed more than 43,000 BTC over the past week. Rather than stepping in as stabilizers, they are contributing to supply.
Sean Rose at Glassnode described it as "persistent loss realization into rebounds." In other words, rallies are being used as exit opportunities.
"Rather than a single capitulation event, we're seeing rallies met with supply from holders who accumulated at higher levels. That reflects distribution pressure, though it's a behavioral signal rather than a forward-looking one."
The question is no longer whether Bitcoin can eventually recover. It's whether the very investors who were meant to drive the next leg higher still have the appetite to try.
Related: Bitcoin mining CEO reflects on ETF impact on bitcoin price
This story was originally published by TheStreet on Feb 25, 2026, where it first appeared in the MARKETS section. Add TheStreet as a Preferred Source by clicking here.
