Bitcoin Breaks Out While Layer-1s Stumble: Capital Flows Turn Chaotic in Late 2025
The crypto market's script flipped again this week. Bitcoin, the perennial heavyweight, is climbing—while the ecosystem of Layer-1 challengers beneath it is seeing red. It's a classic rotation play, but the velocity of the shift has left orderly portfolios in the dust.
The Great Divergence
Money isn't just moving; it's fleeing. The narrative of a 'multi-chain future' hits a snag when capital gets selective. Investors are parking funds in perceived digital gold—Bitcoin—and pulling back from speculative bets on alternative base layers. Call it a risk-off pivot dressed in crypto clothing.
Messy Mechanics
This isn't a clean sector-wide rally. The flows are fragmented, chasing narratives around institutional adoption and regulatory clarity for BTC, while punishing projects still burning cash on user incentives. It reveals a market maturing in some corners and throwing tantrums in others. The usual portfolio rebalancing act now looks more like asset triage.
The Bottom Line
Bitcoin's strength against weak L1s signals a flight to liquidity and a vote for the original crypto blueprint. For the alt-L1 crowd, it's a stark reminder that in crypto, you're only as good as your last network upgrade—and your treasury's runway. One cynic's view? It's just hedge fund algos doing what they do best: creating volatility so they can charge fees on both the panic and the FOMO.
Crypto sector performance echoed the uneven tape. Despite renewed skepticism around AI, crypto Miners were the standout performers, rising 4.5% on the day. IREN, which makes up 24% of the index, gained 4.4% and helped lead the move. DeFi followed with a 1.93% gain, driven by strength in AAVE, ENA, and HYPE, which together account for 44% of the index and all closed higher.
On the downside, DePIN continued to struggle, falling -3.2%. The sector was dragged lower by FIL and GRASS, which dropped -6.2% and -7.2%, respectively. L1s were another surprise laggard, down -2.5% on the day. Even with BTC in the green, most L1 constituents finished lower, with SEI and BERA both posting losses of -9%.
Flows remain a headwind. After a strong $346.2 million day of ETF inflows on Dec. 9, momentum faded again with both BTC and ETH ETFs seeing outflows of -$154.2 million and -$42.3 million, respectively, yesterday. The lone bright spot continues to be SOL ETFs, which are still attracting low single- to low double-digit millions in daily inflows.
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