Leading cryptocurrency market-making firm Wintermute warned this week that an ongoing rotation of investment capital into artificial intelligence (AI) assets has largely diverted liquidity away from digital assets such as Bitcoin and Ethereum, creating headwinds for crypto markets and contributing to subdued performance. According to Wintermute, a shift back from AI-focused trading may be necessary for cryptocurrency outperformance to resume.
AI Trade Draining Crypto Liquidity
In a recent market analysis, Wintermute noted that the AI narrative has been “absorbing available capital for months at the expense of everything else,” a dynamic that has weighed on crypto’s upside potential and amplified volatility in digital asset markets. The firm’s research highlights that when investments in AI-related equities and assets attract capital, less liquidity remains available for crypto trading and spot market demand.
The firm’s analysis suggested that if the AI component is removed from stock performance indices such as the Nasdaq, the negative relationship between crypto price action and broader markets diminishes, implying that AI-focused investment flows have been a key factor in crypto’s recent underperformance.
According to Wintermute’s report, Bitcoin has experienced prolonged downward pressure amid this rotation, with drawdowns tied to sustained selling pressure and a lack of fresh spot demand. The firm remarked that for crypto to outperform again, “air needs to come out of the AI trade,” indicating that a reduction in the AI narrative’s dominance may help restore broader liquidity into crypto markets.
Market Trends Behind the Shift
Wintermute noted that recent market conditions — including continued Bitcoin price volatility, pressure from U.S. spot Bitcoin exchange-traded fund (ETF) outflows, and institutional allocation toward AI equities — have collectively contributed to subdued cryptocurrency performance. The firm pointed out that sustained ETF redemptions coupled with capital flowing toward AI themes have restricted buy-side pressure for crypto spot markets.
Internal trading and over-the-counter (OTC) data referenced by Wintermute also highlighted structural selling pressure from U.S. counterparties, even as volatility spikes and leverage play a dominant role in price movements amid thin spot volumes.
What This Means for Crypto Investors
Wintermute’s perspective underscores a broader concern among market observers: while technological narratives such as AI can drive strong capital inflows and rally valuations in tech stocks, prolonged dominance of a single theme may inadvertently crowd out investment in other risk assets, including cryptocurrencies.
The firm’s analysis suggests that a cooling of the AI trade could free up capital, potentially enabling renewed interest and liquidity in crypto markets. However, absent a material shift in investment flows, crypto assets may continue to experience range-bound conditions and elevated volatility as price discovery unfolds.
