The ETF Trap: How Wall Street Made the 2025 Crash Worse

On Monday 6 October 2025 Bitcoin reached $126,080, the highest price it has ever traded at. The American exchange-traded funds that hold Bitcoin for ordinary investors were worth more than $160 billion, and BlackRock's fund alone almost $100 billion. An exchange-traded fund, or ETF, is a fund that trades like a share on the stock market: buy a unit of BlackRock's iShares Bitcoin Trust, ticker IBIT, through any broker and the fund buys the Bitcoin for you. For a year and a half these funds had been sold as the thing that would make Bitcoin grow up. Steady money from pension funds and wealth managers would, the argument went, smooth out the old boom and bust.

Eighty-six days later Bitcoin ended 2025 at about $88,000, roughly 6% lower than it started the year and about 30% below its October peak, according to CoinGecko data. Gold rose by more than 60% over the same twelve months and the S&P 500 by about 16%. It was the first time Bitcoin had fallen in the year after a halving, the four-yearly cut in new supply. The post-halving years 2013, 2017 and 2021 had all brought huge rallies. The funds that were meant to steady the market spent the last months of the year leading the selling.

January to April: the White House year begins

The year opened on a political high. Bitcoin hit a then-record of about $109,000 on 20 January, the morning Donald Trump was sworn in as president for the second time. Three days earlier he had launched his own meme coin, $TRUMP. On 21 February hackers stole about $1.5 billion of Ether from Bybit, a Dubai-based exchange, the largest crypto theft on record, which the FBI attributed to North Korea. That month investors pulled $3.56 billion out of the US Bitcoin ETFs, a monthly record at the time.

On 6 March Trump signed an order creating a Strategic Bitcoin Reserve. It was made of coins the government had already seized in criminal cases, with no money for new purchases, and Bitcoin slipped once that detail came out. On 2 April he announced sweeping "Liberation Day" tariffs on almost every trading partner. By 7 April Bitcoin had dropped to about $74,800, its lowest in five months, as shares sold off worldwide.

May to October: Wall Street moves in

Then the money came back. ETFs bought steadily through the summer, and a new kind of company joined them. Strategy, the software firm formerly called MicroStrategy, had spent five years raising money from shareholders and lenders to buy Bitcoin, and its shares often traded at a premium to the coins it held. Dozens of copycats followed in 2025, from Japan's Metaplanet to companies buying Ether and Solana. By July 2025 the 50 largest of these "treasury companies" were worth about $150 billion combined, the Financial Times calculated.

Washington added fuel. On 18 July Trump signed the GENIUS Act, the first federal law for stablecoins, digital dollars backed by cash and Treasury bills. Bitcoin passed $123,000 in July and $126,000 in early October.

The structure had a weakness that only showed on the way down. An ETF is easy to buy and just as easy to sell, and every unit redeemed means the fund sells Bitcoin. Treasury companies could only keep buying while investors paid more for their shares than the Bitcoin inside them. Index funds, which buy whatever is in a stock index automatically, owned billions of dollars of those shares. A fall in the price could turn all three groups from buyers into sellers at once.

October to December: the trap closes

The turn came on Friday 10 October. Trump threatened, then announced, an extra 100% tariff on Chinese goods, and leveraged traders, people betting with borrowed money, were wiped out on a scale never seen before: $19 billion of bets were closed by force in a day, according to the data firm CoinGlass. That day is told in full in this site's 10/10 coverage. Bitcoin fell from about $122,000 to about $104,000 within hours.

The same day MSCI, which runs stock indexes followed by trillions of dollars of pension and passive money, opened a consultation on removing companies whose main business is holding crypto, those with half or more of their assets in digital coins. In November JPMorgan analysts led by Nikolaos Panigirtzoglou estimated that removal from MSCI's indexes alone could force $2.8 billion of selling in Strategy shares, and up to $8.8 billion more if other index providers did the same. Michael Saylor, Strategy's executive chairman, disputed the numbers.

November was the worst month for the funds so far. US spot Bitcoin ETFs lost a record $3.79 billion to withdrawals, about $2.47 billion of it from IBIT. On 21 November Bitcoin fell to about $80,600, its lowest since April, after losing roughly a quarter of its value in a few weeks. Strategy's shares ended 2025 down 47.5%.

Not all of the fall was the ETFs' doing. Most of the shrinking in the funds' value came from the falling price: November's record $3.79 billion of withdrawals was a few per cent of funds that had been worth more than $160 billion in October. The funds did not create the selling. They gave it a faster exit.

2026: the bill arrives

The pressure carried into the new year. On 6 January 2026 MSCI shelved its crypto-specific plan and promised a wider review. On 5 February Bitcoin fell to $60,033, according to Bloomberg, erasing every gain since Trump's election win in November 2024. June 2026 set a new record for ETF withdrawals at $4.51 billion, and on 1 July Bitcoin hit $57,735, 54% below its October peak. Between May and August Strategy sold 6,948 Bitcoin, its first sales since 2022, before resuming purchases at the end of August.

The index threat came back too. In August MSCI proposed a broader test for "non-operating companies" that, in a simulation on May 2026 data, would have removed Strategy, Metaplanet and the uranium holder Yellow Cake from its global indexes. Strategy called the test "discriminatory, arbitrary, and misguided". On 15 October 2026 MSCI adopted the new rules, according to the crypto news site The Block, with a final list of affected companies due on 11 November and changes taking effect in its November index review.

In mid-October 2026 Bitcoin trades near $83,000, about a third below its 2025 peak. The ETFs still hold tens of billions of dollars of it. The idea that Wall Street's arrival would end Bitcoin's crashes has not survived its first full cycle.