Bitcoin’s first institutional bear market is starting to take shape and draining liquidity

In an institutional bear market, a Bitcoin ETF redemption is almost aggressively boring. An investor sells shares, an authorized participant returns a large block to the trust, and the fund either pays cash or transfers BTC. Its assets shrink while the shares keep trading near net asset value and the custodian carries on.

Since the SEC approved in-kind redemptions in July 2025, the coins themselves can leave through this process without forcing the trust to sell them on the market.

In 2022, the exit often began with a disabled withdrawal page and ended in bankruptcy court. But now, in 2026, it can begin with a portfolio rebalance and end on an account statement. The fund gets smaller, a source of demand fades, and, depending on how the redemption is handled and hedged, selling can appear elsewhere in the market.

The machine keeps working while the investor takes the loss.

That difference is getting harder to dismiss. Bitcoin reached $126,223 in October 2025, traded below $59,000 on July 1 and recovered to roughly $64,000 in early August. The deepest leg erased about 53%, and the price was still down almost half from its peak at the start of this week. Reuters calculated a 33% loss for 2026 by early June, Bitcoin's worst start to a year in more than a decade.

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