Crypto’s Strange Sell-Off Defies Macro Logic, Says Arca CIO

Jeff Dorman’s central thesis is one of stark contradiction. He notes that traditional financial markets are behaving exactly as economic textbooks would predict amid expectations of Federal Reserve rate cuts, strong consumer spending, and record corporate earnings. “Equity, credit and gold/silver markets are launching to ATHs every month,” he observes. Yet, the crypto market has fallen in seven of the past eight weeks. This divergence is particularly puzzling because, as Dorman lists, the typical catalysts for a crypto bear market are absent: “MSTR isn’t selling, Tether isn’t insolvent, DATs aren’t selling, NVDA isn’t blowing up, the Fed isn’t turning hawkish.”

The sell-off began following technical disruptions like the October 10 exchange outages at Binance and others, but deepened in November. Initially, weakness was attributed to a perceived hawkish tone from Fed Chair Jerome Powell, which saw market-implied odds for a December rate cut plummet from near certainty to as low as 30%. However, Dorman argues the late-November continuation of selling is the true mystery, as the macro backdrop has since turned supportive again. Core PPI data came in cooler than expected, labor market signals point to cooling, and December rate-cut odds have rebounded to around 90%. Despite this, digital assets continue to “sell off on every piece of bad news but fail[] to rally with good news.”

Dorman proposes a working theory for the unexplained weakness: the identity of the marginal seller has changed. He cites a revealing comment from billionaire investor Bill Ackman, who noted his positions in Fannie Mae and Freddie Mac were trading in sympathy with crypto markets despite having orthogonal fundamentals. This, Dorman argues, signals the deep integration of crypto into multi-asset portfolios across traditional finance (TradFi), retail, and digital-asset investors. What was once “a pretty isolated industry” is now a component in broader portfolios where “investments in crypto seem to be the first to go” during rebalancing or risk reduction.

This shift creates a new market dynamic. The crypto ecosystem, with its transparent on-chain data and public wallets, offers relative clarity. In contrast, “TradFi remains more of a black box. And that black box is dominating flows and activity right now.” Large, opaque institutional flows from firms like Vanguard, State Street, or BNY Mellon—driven by internal mandates and risk models rather than crypto-specific fundamentals—can now overwhelm the activity of crypto-native investors, creating sell pressure that appears disconnected from the sector’s own news flow.

Applying Arca’s framework that token value derives from financial, utility, and social components, Dorman finds further anomalies. With market sentiment at cycle lows, it is unsurprising that assets driven largely by social value—like Bitcoin, layer-1 tokens, NFTs, and memecoins—are under pressure. The surprise is that tokens with stronger financial or utility anchors, such as many DeFi tokens, have not consistently outperformed during this downturn. “While some do (BNB), most do not… So that’s a bit odd,” he writes.

Compounding this is the notable absence of traditional “cavalry” buyers who would typically step in to buy perceived dips based on fundamentals. Instead, Dorman observes more players “piling into the weakness, expecting more weakness,” suggesting momentum-driven trading is overpowering value-based analysis. He directly addresses two recurring bearish narratives to underscore the disconnect. On MicroStrategy (MSTR), he reiterates the firm “will never be forced sellers.” On Tether (USDT), he dismisses solvency fears, noting its reserves are roughly 70% in cash and equivalents, making massive same-day redemptions implausible, and the remaining 30% exposure is manageable for its profitable parent company.

Dorman ultimately reduces the puzzle to market structure and flows. The current weakness persists because “there are no buyers within the crypto walls today.” Crypto-native investors are “exhausted” after a prolonged slide, and the much-anticipated wave of Wall Street capital from firms like JPMorgan, Morgan Stanley, and Goldman Sachs is not yet present in force. “The Wall Street firms that are ‘coming’ into the asset class ‘aren’t here today,'” he states.

The final barrier, he concludes, is operational integration. Until major institutions can purchase crypto assets seamlessly within their existing trading systems, compliance mandates, and custodial frameworks, they will remain on the sidelines. For now, the market is caught in a transitional phase: deeply connected enough to be sold by TradFi portfolios as a liquid, discretionary holding, but not yet integrated enough to be reliably bought by those same institutions. This structural limbo, Dorman admits, “certainly has us scratching our heads,” as the total crypto market cap lingers around $2.9 trillion amidst a seemingly illogical decline.