JL Capital — Q4 2025 Investor Report

Fundamentals and robust valuation models were pushed to the side this quarter as the crypto market showed just how susceptible it is to large scale manipulation. After Bitcoin reached an all-time high on October 6th and was looking to continue price discovery supported by record inflows, strong sentiment, regulatory support, and positive momentum, on October 10th, Binance (and/or Wintermute) coordinated in completely resetting price action.

Reportedly due to a bug in Binance's trading engine that forced a USDE depeg, virtually all liquidity was removed from all markets simultaneously, evaporating bids and causing a liquidation cascade that saw major alts drop up to 99% before recovering partially. Because of the speed and lack of liquidity, stop loss orders didn't process, liquidating the portfolios of hundreds of thousands of people regardless of risk control measures.

10.10 fundamentally broke the market in a way that has not been seen since the Mt. Gox hack when Bitcoin lost 50% of its value in 20 days. The contagion from this event is still working its way through the system and has led to very weak market structure and low participation.

Compounding this loss was an emerging trend popularized by Hyperliquid: traders holding their entire portfolio in long-term low-leverage positions instead of owning the underlying asset and selling spot. When 10.10 came, this portfolio model proved systemically broken with platform infrastructure unable to properly rebalance and forcing portfolio liquidation despite still holding profitable shorts.

Outside of crypto, equities markets soared to new heights and precious metals gold and silver pumped vertically, further adding to the idea of “broken market structure” of crypto. Overall, the market is showing full risk-on as the FOMC announced rate cuts during three consecutive meetings and commenced QE and the expansion of the U.S. Federal Reserve balance sheet. For Bitcoin, however, this has not realized itself in growing demand; ETF flows have been consistently negative for most of Q4 and Bitcoin on ETF balance sheets have dropped by around 10% from the height in mid-October.

Bitcoin support remains shaky after the major 10.10 shakeout and shows poor performance despite a very positive 3/4 of 2025 on the back of a Trump victory as “The Crypto President.” Aside from the price action, fundamentals remain positive and Bitcoin hashrate remains high and trending up and to the right even as many major US-based miners have transitioned to become AI data centers.

The US continues to openly embrace Bitcoin and crypto, dismantling legacy frameworks and allowing financial innovation, especially in RWA, as was seen by massive growth in stablecoin interest and a number of prominent platforms supporting U.S. on-chain stocks.

Moving forwards into 2026, the biggest question will be around how do market participants recover from 10.10 and how does the industry move on. It is difficult to imagine Bitcoin entering a definitive bull or bear until we know the full extent of the damage. We expect the market to continue to crab until then.