The Dash to Cash

Crypto’s struggles continue, but other markets are also under stress as some experts believe liquidity may have peaked. Today’s forward guidance looks at how this liquidity situation and continuing unease around private credit may be in part to blame for crypto’s current woes. Meanwhile, our old friend leverage has been building up in the pipes once again, leading some to argue that cash is the best place to be right now.

Elsewhere in the cryptoverse, Vitalik Buterin made headlines recently when a post he made on X was critical of layer 2s. His comments have sparked heated debate within the Ethereum community and raised questions about the future of the layer 2 ecosystem. Below, we break down his argument and look at what it all means for the future of Ethereum.

💔 Dollar Divorce 💔

Once upon a time Bitcoin enjoyed an inverse correlation with the US dollar. A strong dollar meant BTC’s price would fall, and when the dollar weakened - as measured by the dollar strength index or DXY - then BTC would rally. Simples.

Not any more. That inverse correlation has broken down and understanding why is key to figuring out where we go from here. So in today’s video, we explore what’s happened with the DXY and BTC, examine the looming wall of debt refinancing that lies ahead of us this year and look at when the experts think things might be due to start turning around.

You can watch that video here.

📈 Crypto Market Forecast 📈

In case you haven’t noticed, the S&P500 has been trading sideways since October 2025, and it looks like this clear topping process might be close to finishing. This is evidenced by the fact that January 2026 saw unprecedented levels of trading volume in stocks, all while prices continued to go sideways. Of course, this is bearish, as crypto is highly correlated to stocks.

To refresh your memory, crypto has historically been highly correlated to the Russell 2000 (RUT) which recently broke out to new highs. This breakout appears to have stalled in recent weeks, and this could be because of what crypto and small cap stocks have in common. Both sectors have high exposure to private credit, which has been experiencing stress since last summer.

Recently, macro analysts have begun assessing the possibility that private credit stress is not only why the crypto market started struggling after the summer, but also the reason why the broader markets started grinding sideways. Obviously, precious metals and commodities more broadly bucked the trend and kept rallying, but even they have started falling in recent weeks.

This should not be surprising if you’re familiar with Michael Howell’s liquidity analysis, wherein assets like stocks and crypto rally when global liquidity is expanding, and assets like precious metals and commodities rally when global liquidity is peaking. Under Howell’s framework, the recent rally in precious metals and commodities is signalling the peak of the liquidity cycle.

Naturally, what comes after the peak of the liquidity cycle is the decline, where Howell’s models suggest holding primarily cash. This is because when markets start to fall, virtually everything else gets sold for cash, especially if there’s debt that needs to be refinanced. As some of you will know, there is a massive debt refinancing wall in 2026 for many assets and markets.

In practical terms, this means that the crypto market is likely to continue experiencing steady selling pressure, and not just because macro conditions are deteriorating. The fact that critical crypto catalysts like the CLARITY Act and the SEC’s innovation exemption have been delayed indefinitely means there aren’t many catalysts that could bring attention and capital into crypto.

The good news is that the decline of global liquidity probably won’t go down only, just like a rise in global liquidity doesn’t go up only. This means there should be counter-trend rallies in most assets. The bad news is that this liquidity may struggle to find its way into crypto, simply because this has been the case since the summer of 2025 when issues in private credit began.  

The even worse news is that there’s lots of leverage in the crypto market, and not just on exchanges. Retail investors and institutional investors have taken on large amounts of debt using cryptos like BTC and ETH as collateral in CeFi and DeFi. As crypto prices fall, these institutions are being forced to sell, pushing crypto prices lower, triggering even more liquidations, and so on.

Eventually large overleveraged players start to go bankrupt, it looks like we’re starting to see early signs of this happening. If this sounds familiar, that’s because it’s exactly what happened in the previous crypto bear market and the one before that. Large, overleveraged players would get liquidated on the way down, creating down-only price action like we’ve seen.

History suggests that the bottom of the crypto bear market will be marked by a large overleveraged institution going under, such as an exchange or market maker. As it so happens, Evgeny Gaevoy, the CEO of Wintermute, one of the largest crypto market makers, recently said that they’re running out of US dollars, and confirmed in a reply that they have lots of leverage.

This suggests that the down-only price action we’ve seen probably isn’t going to end anytime soon, and it could get much worse before it gets better. Consider that the biggest buyers of BTC could become its biggest sellers in the coming months. Combine this with all the leverage in DeFi and CeFi, and crypto prices - even BTC’s - could go much lower than investors expect.

In sum then, the next week is likely to be a repeat of recent weeks, meaning either a continuation lower, or a small bounce before a continuation lower. That’s bear markets for you.

🧐 Layer 2 Debate 🧐

Earlier this month, Ethereum founder Vitalik Buterin made a post on X that signalled the end of Ethereum’s rollup-centric scaling strategy.

For context, Ethereum’s original ‘rollup-centric roadmap,’ which it had pursued for nearly six years, positioned layer 2 networks (L2s) as Ethereum's primary scaling solution, with the Ethereum layer 1 focusing on security and decentralisation while L2s handled execution.

Buterin’s post marked the end of this approach, claiming the current state of L2s significantly undermined the original vision in Ethereum’s rollup-centric roadmap. Specifically, Buterin claimed that most general-purpose L2s were effectively redundant in 2026, calling for a change in strategy on how the industry treats L2s.

This caused discord among Ethereum community members, as the change in approach caught them by surprise. Some felt attacked, with initial reactions interpreting the post as a sign that Ethereum was abandoning or dismissing the value provided by L2 networks. However, after some clarification, it’s become clear that this isn’t the case. In fact, Ethereum’s change in strategy is actually bullish for the long-term health of its ecosystem.

To put it bluntly, it forces L2s to answer some tough questions that may lead to more honesty about their security assumptions while encouraging genuine innovation.

To understand how, we need to talk about the two critical contributors identified by Buterin for this shift in strategy.

The first is the lack of progress in L2 decentralisation and interoperability. Buterin noted that L2s' progress to stage 2 decentralisation has been far slower and more difficult than originally expected. He noted that many L2s are effectively separate chains with bridges and have no intention of becoming fully trust-minimized. He noted that some projects have explicitly stated they may never progress beyond stage 1 due to regulatory requirements or customer demands for control.

According to Buterin, the problem with this approach is that it contradicts the original definition of "Ethereum scaling" as block space backed by Ethereum's full security guarantees. In the absence of such security guarantees, it does make sense to treat L2s as "branded shards" of Ethereum as it risks granting blanket endorsement that is blind to the reality of the L2’s connection to Ethereum.

The second contributor to this shift in strategy is that advancements in L1 scaling (sub-$0.10 fees and a major gas limit increase) have made generic L2s redundant. Notably, gas fees on Ethereum mainnet have reduced significantly since 2020 (when the rollup-centric roadmap was first proposed), falling from over $50 during the 2021 congestion period to as low as ~$0.10 per transaction in early 2026.

While L2s that focused purely on making transactions cheaper were a welcome addition in the early 2020s, they no longer serve an effective purpose in a world where Ethereum itself is able to scale. Most of the early L2s, which took the “Ethereum but cheaper” approach are now being encouraged to confront the reality of their current contributions to scaling mainnet.

As a possible path forward, Buterin encourages the industry to view L2s as a spectrum with varying degrees of connection to Ethereum instead of generically grouping them under one category. He argues that this approach will help differentiate security guarantees, while forcing projects to “identify a value add other than scaling."

As an example, Buterin highlighted a few areas that L2s could specialise in. These include privacy-focused VMs (specialised cryptographic features); application-specific optimisation (gaming, payments, DeFi); extreme scaling beyond even upgraded L1 capacity; ultra-low latency sequencing; built-in oracles or decentralised dispute resolution, and non-financial applications (social networks, identity, AI).

A few examples of such L2s include MegaETH (extreme scaling); Abstract (non-financial consumer app chain); Aztec (privacy L2) and Lighter (perp DEX rollup).

As for advancing interoperability and security guarantees in a diverse spectrum of L2s, Buterin has proposed a native rollup precompile that would verify ZK-EVM proofs as part of Ethereum itself. A possible framework for this spectrum could see L2s grouped under native rollups (full security via enshrined ZK-EVM proofs useful for high-value DeFi), specialised L2s (Privacy, gaming, social, AI), application chains (L2 handles app-specific actions while using L1 for settlement and security guarantees), and institutional chains (focused on verifiable algorithmic transparency instead of security or immutability).

As we stated before, this reset ultimately benefits Ethereum by forcing honesty about security assumptions and encouraging genuine innovation. Projects can no longer piggy back off the Ethereum brand without proving that they add value to the ecosystem.

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🔮 Video Pipeline 🔮

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📖 Quote of the Week 📖

“Empty pockets never held anyone back. Only empty heads and empty hearts can do that” - Norman Vincent Peale

Team Coin Bureau

Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.