Bitcoin and Ether Rally: Institution-Led Rebound, or Regulatory Tailwinds, Short Squeeze and Liquidity Easing Combining?

Recently, a gap has appeared between how individual investors feel about the tech stock market and how the market is actually moving. Although many investors felt a chill from the decline in semiconductor stocks, the market as a whole saw a rebound led by software-centered names such as Meta and Tesla. This indicates that sector-by-sector differentiation has emerged, and that the broader market rally has not lifted all stocks evenly.

As share prices fell, capital was observed moving into relatively undervalued names. However, unless fundamental earnings improvements support these gains, there is a high risk that money will flow out again once prices rise.

Media and YouTube channels have flooded headlines that stoke fear, citing surging bond yields and difficulties facing the U.S. government. Yet the VIX, the market's volatility index, recorded a low 15.7, in stark contrast to those fears. The VIX reflects hedging demand over the next 30 days, so a low reading means there is little movement toward buying put options or otherwise preparing for a market decline. This highlights the difference in market perception between institutional and individual investors.

A recent survey found that 40% of individual investors hold a negative outlook on the stock market over the next six months. Even with the market near record highs, retail investors still appear to feel fear about it. Some assess this as an opportunity for contrarian investing and buying at lower prices. The contrast with the relatively positive stance of institutional investors underscores the need for a strategic approach to retail investor psychology.

The sharp rise in Bitcoin and Ethereum prices is analyzed not as a simple dead-cat bounce but as the combined result of three core factors. First, regulatory clarity from Washington eased some uncertainty around crypto and formed a more positive investment mood. Second, the forced liquidation of roughly $1.1 billion in short positions sharply increased buying pressure. Third, broad liquidity easing through long-term interest rate adjustments encouraged capital to flow into risk assets, including crypto. Together, these factors are described as driving the current strong rally.

The Coinbase Premium Index is used as a gauge of retail investor sentiment in the crypto market. The fact that this index is still negative suggests that the current crypto rally is more likely an institution-led rebound, in which institutional capital moves first, rather than an overheated, retail-driven one. If the index turns positive, it could be read as retail investors entering the market in earnest.

Often called the VIX of the bond market, the MOVE index exceeded 100 during major crises such as the COVID-19 pandemic, the 2022 inflation shock, and the tariff war. Currently, however, it stands around 73, indicating low financial system stress in the bond market. This again shows that investing based only on headlines can lead to wrong judgments.

When the crypto market turns upward, Ethereum tends to rise before and more strongly than Bitcoin. The Ethereum/Bitcoin ratio has rebounded since July, which signals that risk appetite is spreading across the market as a whole. This can be read as a sign that warmth is spreading beyond Bitcoin to the crypto market at large, supporting the analysis that the current rebound is unlikely to be a one-off rise.

First, verify whether the moving averages hold as support and whether they form a bullish alignment. Second, check whether the Coinbase Premium Index turns from negative to positive, to judge whether retail investors are entering in earnest. Third, if short-term momentum falls, strictly follow a principle of immediately withdrawing capital to manage risk.

Crypto investing is regarded as high-risk, with a lower probability of success than investing in companies based on earnings. For that reason, some caution that allocating most of one's investment capital to crypto is a very risky strategy. Experts recommend prioritizing investments in companies with a higher probability of success and limiting crypto to no more than 10% to 15% of total assets. This is presented as a strategy of managing high risk while diversifying investments.