Looking at the market trends over the past year, one obvious change is the entry of institutional funds. The original cryptocurrency market was mainly composed of retail investors, but now a large number of traditional financial institutions are also participating. The result is that market volatility has become noticeably different.

What is the biggest difference between institutional funds and retail investors? Size, systematic decision-making, and highly coordinated actions. In traditional markets, institutions (such as pension funds, insurance companies) make decisions based on macro analysis and asset allocation models. For example, when the Federal Reserve raises interest rates, they start shifting money from stocks to bonds, causing the stock market to fluctuate dramatically.

However, the way institutional funds operate in the crypto market is quite different. After the launch of Bitcoin spot ETFs in 2025, a large influx of institutional capital occurred. It sounds like a good thing, but in reality, these institutions are very sensitive to interest rate changes. The events in the second half of the year serve as an example—when U.S. Treasury yields broke through 4%, many institutions immediately withdrew their money from Bitcoin ETFs and moved into risk-free Treasury bonds. The result? Crypto market liquidity suddenly contracted, and price volatility soared like a roller coaster.

There is a key difference here. Traditional financial markets are highly structured—trades occur at fixed times, regulatory frameworks are clear, and participant identities are relatively fixed. The crypto market, on the other hand, is different. It trades 24/7, regulatory frameworks are still in development, and participants are diverse. When institutional funds flood in, this disorder is amplified. When many institutions make the same decision simultaneously, small markets cannot handle it, and volatility spikes instantly.

Most importantly, the inflow and outflow of institutional funds are often accompanied by cross-market risk transmission. When problems occur in traditional markets, institutions tend to withdraw investments from multiple markets simultaneously. This spreads risk from the stock market to the crypto market and even affects commodity markets. Such linkage effects are not visible in the era dominated by retail investors.

Therefore, when analyzing the crypto market now, one cannot just focus on the coins themselves but must also pay attention to macro factors like the trends in traditional financial markets, Federal Reserve policies, and Treasury yields. The entry of institutional funds indeed brings liquidity to the market but also increases risks.