Wintermute: Crypto Market Faces "Bloodletting," Retail Enthusiasm Shifting to US Stocks

Author: Wintermute

Compiled by: Deep Tide TechFlow

Introduction: This article is written by Wintermute OTC trader, providing an in-depth analysis of the fundamental reasons behind the current retail capital outflow in the crypto market. Historically, crypto bull markets have often been driven by retail speculation, but recent data shows that retail investors are pouring into U.S. stocks at record speeds, causing the crypto market and U.S. equities to shift from “moving together” to “teeter-totter.” As crypto market volatility declines, entry and exit thresholds lower, and AI enhances retail analysis in U.S. stocks, cryptocurrencies are no longer the first choice for retail speculation. Understanding this capital rotation logic helps us readjust multi-asset investment frameworks.

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Retail activity has always been a key driver of the crypto market. Through speculation, reflexive dip-buying, and flexible capital rotation among various tokens, retail investors have defined every major cycle in crypto history. But latest data indicates that the relationship between retail and the crypto market is changing.

For some time, we’ve been warning that the U.S. stock market is attracting retail attention, which has come at the expense of altcoin liquidity. The latest data from JPMorgan’s strategy team, combined with our exclusive capital flow data, further suggests that: U.S. stocks and cryptocurrencies are becoming interchangeable risk assets.

Reversal of Correlation

By overlaying Wintermute’s exclusive retail crypto capital flow data with JPMorgan’s retail U.S. stock inflow data, we gain a new perspective on the activity relationship between retail in stocks and crypto.

Historically, these two often moved in sync. Until the end of 2024, risk appetite increases typically meant both sides were buying, as they both represented excess capital (referencing M2 data) and outlets for risk appetite. However, since late 2024, this correlation has broken down. Recently, we’ve seen the most severe divergence in history: retail is pouring into U.S. stocks at record rates, while in the crypto market, they are holding cash and watching.

Looking at a longer cycle, we use the total market cap of altcoins as a long-term proxy for retail crypto activity. It aligns closely with our retail capital flow data and has a more objective, long-term historical record. From 2022 to late 2024, crypto and U.S. stocks generally moved together, with retail viewing both as part of high-risk portfolios. But the decoupling at the end of 2024 is especially pronounced, with retail trading behavior becoming more short-term driven, volatile, and lacking structural coherence.

The rolling correlation between retail activity and altcoin market cap confirms this shift. Once positively correlated with fluctuations, the relationship has now turned negative. Retailers are now making “either-or” capital allocations between the two, rather than buying both simultaneously.

Focusing on 2025, combined with key catalyst events, this dynamic becomes even clearer. Several points stand out:

• When U.S. stock activity stagnates, memecoins and AI agents shine, with retail shifting speculative demand into these areas.
• Whether during the April 2025 tariff policy announcement or recent periods, retail continues to aggressively dip-buy U.S. stocks.
• After October 10, capital almost entirely shifted to U.S. stocks, and this trend persists.

Causality

It’s important to clarify: we do not believe retail in crypto is large enough to drain funds from the U.S. stock market. On the contrary, the high enthusiasm of retail in stocks has drained liquidity from the crypto market.

New data confirms this. Retail activity in U.S. stocks has become a new variable; crypto investors should closely monitor this indicator to identify windows where retail capital might provide sustained buying support for crypto.

Volatility as a Product

While there are many reasons, one core reason retail remains so active and attracted to crypto is its volatility profile. Volatility itself is a product. This was the main driver that initially drew retail into crypto.

However, although crypto volatility remains far above that of U.S. stocks, its realized volatility has been undergoing structural compression, and this trend is hard to reverse. The volatility ratio of BTC to the Nasdaq 100 (NDX) has been declining, and in the first half of 2025, this ratio was compressed to below two times.

Key factors to consider:

• Market Maturation: Increasing participation of institutional investors, along with new liquidity tools like ETFs and DATs, has suppressed the typical reflexive volatility surges seen in early cycles.
• Market Size: The current total crypto market cap is $2.3 trillion. Even after a 40% retracement from all-time highs, the amount of capital needed to push the market higher is much larger than five years ago.

As volatility compresses, the core selling point of crypto for retail—its dramatic swings that defined the 2021-2022 bull cycle and attracted a whole generation of retail—diminishes. For volatility-seeking retail, U.S. stocks are becoming increasingly attractive.

Technology-Driven Factors

Beyond structural changes in the crypto market itself, technological factors are accelerating this capital rotation, though this is not yet widely discussed.

• Access to Investment Channels: Fintech and traditional broker platforms integrating crypto trading (or crypto-native platforms integrating U.S. stock trading) have lowered entry barriers. But the deeper impact lies in “capital withdrawal.” Previously, complex deposit and withdrawal processes kept funds locked in crypto once entered, fueling organic rotation among tokens. Now, seamless deposit and withdrawal channels allow free movement of capital between crypto and stocks without friction.
• Cognitive Edge: Retail investors seem increasingly attracted to U.S. stocks partly because they gain a new advantage through AI. Large language models (LLMs) greatly enhance retail analysis capabilities, creating an illusion of being able to compete fairly with institutions.

In crypto, this feeling does not exist. While you can analyze crypto projects based on data, the field lacks consensus valuation frameworks and token value capture mechanisms. Meanwhile, the universe of investable tokens keeps expanding, making it hard for retail to feel they hold a real “advantage.”

Conclusion

Retail was once the most reliable reflexive demand source for the crypto market, but now their risk appetite is increasingly being satisfied elsewhere. U.S. stocks offer highly competitive volatility, enhanced analytical advantages for retail, and capital can seamlessly switch between crypto and stocks via the same app. While crypto still has a place in retail portfolios, it is now just one of many tools in the game, no longer the primary vehicle for speculation.

This shift should reshape how investors view the market. Some time-tested indicators have already become ineffective. For crypto investors, success now requires more than just tracking leading risk appetite indicators and combining them with native crypto frameworks. Investors need to increasingly adopt a multi-asset portfolio perspective, similar to the approach long standard in U.S. equities and fixed income markets.