This time Ethereum retail investors beat institutions

On November 24, 2024, Citron Research, a well-known short-selling institution, said on social media that although it is optimistic about Bitcoin in the long term, it believes that the stock price of MicroStrategy (MSTR) has deviated from the fundamentals of Bitcoin. Therefore, they adopted a hedging strategy of shorting MSTR and longing BTC, and betting on the trends of both tend to converge. However, data six months later showed that the price difference between MSTR and BTC not only did not narrow, but expanded by 7%. This means that if Citron's strategy is strictly implemented, the hedging position has caused substantial losses in the past six months.

Why is the premium rate of MSTR Bitcoin assets as high as 103%? Although the market generally believes that this phenomenon stems from its leverage strategy of "issuing bonds and buying coins", as of May 12, 2025, MSTR has held nearly US$60 billion in Bitcoin, while its total liabilities are only US$8.5 billion, and its actual debt ratio is less than 15%. This financial structure shows that traditional leverage theory cannot fully explain its high premium phenomenon. In fact, MSTR's extremely high asset premium rate reflects the market's valuation reconstruction of its "Bitcoin Bank" business model - strategic first-mover advantage and super profit expectations.

For example, in securities trading, there is a significant stratification effect on market liquidity: when investors buy individual stocks in small quantities, the trading price is usually close to the market price; however, if you try to acquire more than 5% of the shares, the stock price may rise sharply due to insufficient order book depth. This additional cost caused by large transactions is called liquidity premium. According to Coinglass, the balance of the entire centralized exchange is only 2.17 million. The price of replicating another MSTR (568,840) will be far more than US$60 billion.

The liquidity premium essentially reflects the market's expected difference in the future price of Bitcoin, and the rise in the premium rate reflects the further strengthening of the market's bullish sentiment. From April 7 to May 12, 2025, the Bitcoin asset premium rate of MSTR quickly rose from 55% to 103%, and this change shows:

1. Market valuation expectations for Bitcoin are being systematically revised

2. Spot market selling liquidity is showing structural tension (the balance of the exchange is only 2.17 million yuan)

Based on these analyses, we remain optimistic that Bitcoin will continue to hit record highs this year.

From May 7 to May 9, the price of ETH soared from $1,760 to $2,490, an increase of up to 40%. However, what is strange is that during the same period, Ethereum ETF not only did not have capital inflows, but also flowed out 20 million US dollars. This divergence phenomenon shows that the main driving force of this round of market comes from retail investors, not institutions. The sharp rise ≕ the dominance of retail investors has also caused the market to be extremely worried about the sustainability of this round of market.

In fact, this situation is not unique to the crypto market. According to a JPMorgan Chase report, S&P plummeted 5% on April 3, but retail investors hit a record net purchase of 4.5 billion stocks and ETFs, with net purchases reaching $50 billion in the first week of April alone, while in earlier January-March 2025, retail investors had already bought $67 billion in stocks and ETFs. Judging from historical data, although the trend of institutional holdings is indeed more meaningful, institutions often make mistakes.

During the outbreak of the new crown epidemic in March 2020, institutional investors caused four circuit breakers due to panic selling, but after a big rise in April, they made a large increase in positions in a way that chased highs, missing the fastest bear market rebound in history (it was also very similar to now). What is even more ironic is that according to Goldman Sachs bulk brokerage data, hedge funds' net selling scale reached its annual peak on the day the market bottomed on March 23, 2020, while retail investors set a single-day account opening record through platforms such as Robinhood. The same is true for the crypto market. From December 5, 2024 to February 4, 2025, ETH had a cumulative net inflow of US$3.2 billion during its peak and decline. However, as ETH entered a new round of decline, the bottom-buying institutions cut all the ETH ETFs. Interestingly, after the institutions cut their losses, the market began to bottom out and rebound. Therefore, in many cases, institutions will also make the mistake of chasing ups and selling downs.

On May 14, ETH fell 2.6%, but the ETH ETF flowed into US$63 million against the trend. It seemed that some institutions that missed the opportunity began to replenish their positions while the price correction was pulled. If the net inflow of ETH ETF funds further expands within the next 2-3 days, then the "mistake recognition wave" of institutions may begin from now on.

Although the logic behind ETH trend reversal is still weak, the fundamentals and capital improvements brought about by Pectra's upgrade can at least support Ethereum to return to the valuation center of 2800-3200. Therefore, investors with a cost of less than 2,800 will not be able to trap it in the medium and long term.