Bitcoin's Reckoning: How Crypto's True Believers Are Grappling With an Identity Crisis

KEY POINTS

• Bitcoin plunged to $60,074.20 (Feb. 6) from its October high of $126,273, suffering its worst weekly decline in over three years—but unlike previous crypto crashes, no major exchange collapsed, no fraud was uncovered, and even industry veterans can't agree on what caused the selloff.

• Five competing theories dominate the debate: distraction from AI and prediction markets, dilution from Wall Street ETFs, Federal Reserve policy uncertainty, stalled crypto legislation, and simple profit-taking after 2025's rally—reflecting an industry struggling with its own identity crisis.

• As traditional investors pour $51.6 billion into international stocks and shift away from U.S. markets, crypto faces a deeper question: whether it can articulate a purpose beyond financial speculation, or if its "structural mainstream" integration marks a ceiling rather than a foundation.

👉 Bonus: Below you will find five ChatGPT prompts that you can use to develop your expertise in this area.

The Larry David commercial seemed prescient in all the wrong ways.

During Super Bowl LVI in 2022, the comedian starred in a now-infamous FTX advertisement, playing a time-traveling skeptic who dismisses every major innovation in human history—the wheel, democracy, electricity—before scoffing at cryptocurrency with his signature deadpan: "I'm never wrong about this stuff. Never."

Four years later, as Bitcoin went as low as $60K from its October high of $126,273 and the crypto faithful gathered virtually to diagnose what went wrong, that commercial has become something closer to a Rorschach test. Was David's character the fool for rejecting innovation? Or was he accidentally right to be suspicious?

This time, there's no clear answer. And that uncertainty is precisely what makes this crypto winter different—and potentially more unsettling—than those that came before.

"There was no smoking gun," said Michael Novogratz, who runs Galaxy Digital, a crypto merchant-banking and trading firm, attempting to explain Bitcoin's 16% weekly decline in early February—its worst performance in more than three years.

For an industry built on the promise of transparency and decentralized certainty, the current malaise presents an uncomfortable paradox: Even crypto's most vocal champions cannot agree on what caused the crash.

The Mystery of the Missing Crisis

Past crypto downturns came with obvious culprits. In 2018, the initial coin offering bubble burst spectacularly, erasing 80% of Bitcoin's value after thousands of dubious startups raised billions with little more than whitepapers and promises. In 2022, the $40 billion collapse of TerraUSD and Luna coins triggered a domino effect culminating in Sam Bankman-Fried's FTX implosion—an $8 billion fraud that sent shockwaves through the industry.

This time, institutional infrastructure appears stronger. No major exchanges have collapsed. No ponzi schemes have unraveled. The regulatory environment, particularly after the passage of the GENIUS Act establishing a framework for stablecoins, seemed more favorable than ever. President Trump's administration had explicitly pledged to make America "the world's crypto capital."

Yet Bitcoin fell from grace anyway, dropping to around $60K by February 6, with Ether plummeting 59% from its 2025 peak.

"I really didn't think that we'd see a six at the beginning of the bitcoin price ever again," said Cory Klippsten, chief executive of Swan Bitcoin, capturing the disbelief rippling through the market.

Five Theories, Zero Consensus

The explanations proliferating across trading floors and Telegram channels reflect crypto's current fragmentation.

The distraction theory posits that Bitcoin lost its monopoly on speculative attention. Anthony Pompliano, CEO of ProCap Financial and a prominent crypto evangelist, argues that prediction markets, artificial intelligence stocks, and gold have diverted capital that once flowed automatically to digital assets. "It used to be that bitcoin was the consensus view where asymmetry existed," he said. "Now you have AI, prediction markets…many other areas."

The dilution theory suggests Wall Street inadvertently undermined crypto's core appeal. By launching Bitcoin ETFs and derivatives, financial institutions enabled investors to gain price exposure without owning actual coins—potentially diluting the scarcity that made Bitcoin's fixed 21-million-coin supply so compelling.

The policy paralysis theory blames congressional gridlock. After the GENIUS Act's successful passage, the industry expected the CLARITY Act—legislation creating comprehensive regulatory frameworks—to advance quickly. Instead, disputes between crypto exchanges and traditional banks stalled momentum, leaving firms reluctant to integrate digital assets without clear guidelines.

The macro theory points to Kevin Warsh, Trump's nominee for Federal Reserve chair. Despite Warsh's previous praise of Bitcoin as a "policeman for policy," some investors worry his hawkish stance on interest rates and support for a stronger dollar could hurt alternative assets, such as gold and crypto. The WSJ Dollar Index did edge up 0.4% during Bitcoin's worst week.

The profit-taking theory offers the simplest explanation: After Bitcoin surged roughly 80% between Election Day 2024 and October 2025, investors simply cashed out. "Euphoria" turned to pragmatism.

"If you ask five experts, you'll get five explanations," said Anthony Scaramucci, who briefly served as communications director during Trump's first term and now champions crypto at SkyBridge Capital.

Wall Street's Pivot Goes Global

While crypto wrestles with existential questions, traditional finance is quietly executing its own transformation. After years of concentrating bets on American tech giants, investors are increasingly looking abroad—a shift that may indirectly explain some of crypto's struggles.

Last spring, it was 'Sell America.' Now Wall Street's hot trade is buy everywhere else, according to recent market analysis. Investors poured a net $51.6 billion into international equity exchange-traded funds in January, according to Morningstar Direct data, as global indexes from Europe's Stoxx 600 to Korea's Kospi outpaced U.S. benchmarks.

Keith Lerner, chief investment officer at Truist Advisory Services, summarized the mood: "Right now, we're in a global bull market. It's no longer just a U.S. story."

The weakening dollar—down roughly 10% from its 2022 highs—has juiced returns on foreign equities while simultaneously complicating Bitcoin's narrative as a hedge against currency debasement. If investors can achieve diversification and potentially higher returns through Japanese or European stocks, why shoulder crypto's volatility?

The Long Game

Not everyone is panicking. Chris Dixon, founder and managing partner of a16z crypto, published a lengthy defense of the industry's trajectory in early February, arguing that critics fundamentally misunderstand both the thesis and the timeline.

"It's fashionable right now to declare that 'non-financial use cases of crypto are dead,'" Chris wrote. "These conclusions misunderstand both the thesis and the stage we're in."

Chris contends that finance was always meant to be crypto's first proving ground, not its final destination. Just as the internet required decades of infrastructure development before social media and streaming emerged, blockchain networks need widespread adoption through payments and stablecoins before supporting gaming, media, or decentralized AI coordination.

"The messy years are what make the obvious years possible," he wrote, noting that a16z crypto's funds operate on 10-year horizons precisely because "building new industries takes time."

The argument echoes across the industry. Bernstein analysts maintained their $150,000 Bitcoin price target for 2026, calling the current environment "the weakest bitcoin bear case in its history" because typical catalysts for collapse—hidden leverage, systemic fraud, major exchange failures—are conspicuously absent.

Yet even optimists acknowledge that trust, once lost, rebuilds slowly. "Years of scams, extractive behavior, and regulatory attacks severely eroded trust in tokens," Chris admitted, suggesting this erosion may contribute to current market weakness.

5 PROMPTS THAT ATHLETES CAN USE TO DEVELOP AND BUILD EXPERTISE

• Compare the 2018, 2022, and 2026 crypto crashes: what caused each, how severe were they, and what made the 2026 downturn uniquely difficult to explain?

• How do Bitcoin ETFs and derivatives affect Bitcoin's scarcity value? Explain both sides of the 'dilution' debate and whether gold ETFs had similar effects.

• Why does Chris Dixon argue crypto must succeed in finance before expanding to gaming, media, and AI? What non-financial applications are most promising and what's blocking them?

• Explain the GENIUS Act and CLARITY Act. How is regulatory uncertainty affecting the 2026 crypto downturn, and how does U.S. regulation compare to Europe and Asia?

• Why are investors shifting from crypto and U.S. tech to international stocks? Analyze the role of the weakening dollar, AI stocks, and prediction markets in this capital reallocation.

👉 We'd also be happy to give you access to our specialized GPTs to find the best solution for your specific situation. Additionally, feel free to check out our AI Performance Architect GPT for some ideas on how to get even more out of ChatGPT.

Rebuilding Credibility, One Karaoke Commercial at a Time

Which brings us back to the Super Bowl—and crypto's fraught relationship with mainstream marketing.

This year, Coinbase returned to the big game with a 60-second spot featuring karaoke-style lyrics to the Backstreet Boys' "Everybody (Backstreet's Back)," opening with: "Oh my god, we're back again." The ad drew mixed reactions, with some viewing it as tone-deaf given the market's struggles.

Scott Melker, who publishes the influential Wolf Den newsletter, defended the commercial as "progress" compared to FTX's spectacular failure. "At least Coinbase gave us a Super Bowl commercial, and it's a company I highly doubt will rug pull us for billions three years from now," he wrote. "Maybe that's progress. Maybe that's the industry slowly rebuilding trust."

The sentiment captures crypto's current predicament: celebrating the absence of catastrophe as achievement, while simultaneously insisting revolutionary transformation lies just ahead.

Michael Saylor, whose company Strategy reported a $12 billion quarterly loss related to Bitcoin's decline, told investors on a Thursday conference call that the only path forward is patience. "Your time horizon needs to be, minimal, four years," he said.

The Verdict History Will Render

Whether Larry David's fictional skeptic was ultimately right or wrong won't be clear for years. What is clear is that crypto has entered a new phase—one where institutional adoption, regulatory frameworks, and financial integration matter more than viral marketing campaigns and utopian manifestos.

The industry survived a fraudulent exchange burning billions. It attracted ETF approval and corporate treasury adoption. It influenced a presidential election. What it hasn't yet done is articulate a compelling reason for existence beyond financial speculation—or demonstrate that its financial use cases offer sufficient advantages over evolving traditional systems.

"Crypto has actually gone mainstream today in a far more productive and durable way" than during previous hype cycles, Melker argued. "Back then, crypto felt culturally mainstream. Today, it's becoming financially and structurally mainstream."

Whether that structural integration proves to be crypto's foundation or its ceiling remains the central question—one that no amount of Super Bowl commercials, however clever, can answer.

For now, the true believers are left with what they've always had: conviction that they're right, patience to wait it out, and the uncomfortable awareness that even they can't fully explain why the revolution seems to have stalled.

Larry David, wherever he is, probably has a joke ready either way.

👇

I really appreciate you reading my note today.

Peace,

Irg

Irg’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. This work may feature assets and entities in which the author has invested.

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