December 15, 2025

The Stress Test: ETF Cost Basis

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Part 1 found the floor: $80,000 in aggregate cost basis beneath $127 billion in institutional capital. Part 2 identified who breaks first: 21Shares already underwater, BlackRock just 7% above break-even, 90-day buyers down 22.5%.

The question that remains: what happens when the price actually tests these levels?

The Stress Test Matrix

The cost basis framework lets us model drawdown scenarios precisely. We know where every entity's break-even sits. We know the volume profile at each price level. We can calculate exactly how much of the complex goes underwater at any given price.

Current ($89,237): 38.2% underwater, 1 of 11 entities in the red
-10% ($80,313): 41.9% underwater, 3 of 11 entities in the red
-20% ($71,389): 51.8% underwater, 8 of 11 entities in the red
-30% ($62,466): 78.2% underwater, 11 of 11 entities in the red

Break-Even Waterfall

The critical thresholds matter because they represent psychological and mechanical tipping points. At 25% underwater, stress exists but remains manageable. At 50% underwater, the majority of holdings are in loss positions. Risk models flag. Investment committees convene. The conversation shifts from "when do we add" to "when do we cut."

Break even waterfall ETF holdings at risk BTC

The -20% Cliff. The stress test reveals a critical non-linearity. From current prices to -10%, the underwater percentage increases by just 3.7 percentage points. The system absorbs the move. Between -15% and -25%, that same ten percentage point price decline produces six times the stress increase. The underwater percentage jumps 23.4 points.

This non-linearity matters. The first 15% of downside is survivable. The next 15% is where damage compounds. The air pocket between $75,000 and $85,000 becomes a trapdoor.

Cascade Mechanics

Stress doesn't propagate evenly. The weaker hand capitulates first. Their selling pushes price lower. Lower prices put the next weakest hand underwater. They sell. The loop continues until price reaches a level where remaining holders have enough cushion to absorb pressure.

The Stages:

Stage 0 (Current): 21Shares underwater, isolated, absorbed by Fidelity accumulation
Stage 2 (-7%): BlackRock goes underwater, 53% of holdings flip to loss
Stage 3 (-10%): Aggregate floor breached, $11.85B in profit turns negative
Stage 6 (-25%): Fortress zone approached, maximum institutional defense

The BlackRock step dwarfs every other step in the cascade. That single entity going underwater is more significant than all others combined. It isn't one domino among many. It's the domino that takes out half the board.

Transmission Mechanisms. How does stress at one entity transmit to the broader market? Three channels matter.

Direct selling: underwater entities facing redemptions must sell BTC to meet outflows. Narrative contagion: headlines about institutional losses change sentiment across the complex. Mechanical triggers: many institutional allocators have risk limits and drawdown thresholds that fire automatically when breached.

The cascade propagates through risk management systems as much as through discretionary decisions. Understanding these channels helps anticipate the speed and severity of moves through different price zones.

Flow Quality

Net flows tell you direction. They don't tell you meaning. The ETF complex has seen net outflows of 29,978 BTC over 30 days. Sounds bearish. But the interpretation depends entirely on who is selling and why.

The 30-Day Breakdown:

Profitable Sellers: -33,185 BTC across 9 entities (profit-taking)
Underwater Sellers: -3,505 BTC across 1 entity (capitulation)
Accumulators: +6,712 BTC across 1 entity (Fidelity)

90% of outflows came from entities sitting in profit. They're not panicking. They're booking gains. Only 10% represents genuine distress from the single underwater entity, 21Shares.

The same 30,000 BTC outflow means something entirely different depending on which bucket it falls into. Profit-taking is a sign of market health. Capitulation signals that conviction has cracked. The current 90/10 split is healthy. An 80/20 split would be concerning. A 60/40 split would signal deterioration. Anything approaching 50/50 means the cascade is underway.

The Redemption Pressure Index

Individual metrics tell pieces of the story. Distance from cost basis. Flow momentum. Entity stickiness. Price volatility. We built a composite indicator combining them into a single stress reading.

Current RPI: 65.2 out of 100
Zone: Elevated
Primary Driver: Buffer compression (distance score: 85.8)

The distance component is doing most of the work. The thin buffer between current price and aggregate cost basis elevates the index even though flows remain orderly and volatility stays contained. RPI is signaling caution based on positioning rather than panic based on behavior.

Historically, readings above 70 preceded negative monthly returns 78% of the time. Readings below 30 preceded positive returns 71% of the time. The current 65.2 sits in the upper half of the caution zone. Not a sell signal. But not the time for maximum long exposure either.

The index suggests defensive positioning and patience rather than aggressive action in either direction.

The Complete Analysis

The full report includes:

Full Stress Test Matrix: Nine scenarios from -5% to -50% with entity-by-entity breakdown
Cascade Propagation Model: Stage-by-stage analysis of how selling begets selling
Flow Quality Framework: Methodology for distinguishing profit-taking from capitulation
Entity Stickiness Scores: Which capital is structural versus hot money
RPI Deep Dive: Component breakdown, historical accuracy, and regime thresholds
Key Levels Framework: Specific prices where dynamics shift for longs and shorts

[Download the complete report: "The Stress Test: ETF Cost Basis Part 3/3 - Full Report"]

Three Frameworks to Apply

The Three-Tier Support Model:

Tier 1 ($97,600): Marginal buyer cost basis. Fragile.
Tier 2 ($80,000): Aggregate floor. The line in the sand.
Tier 3 ($65,000-$70,000): Fortress zone. Maximum structural support.

Flow Quality Ratio: Currently 90/10 profit-taking versus capitulation. Watch for deterioration toward 60/40.

RPI Regime: Currently 65.2 (elevated). Above 70 shifts to defensive. Below 50 shifts to constructive.

The framework doesn't predict price direction. It maps structural features of institutional positioning and identifies levels where behavioral dynamics shift. The distribution of capital, the sequence of vulnerability, and the composite stress readings provide context for evaluating conditions as they evolve.

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Links & Resources

Recent from Amberdata (most recent at the top)

[LINK TO PART 2]

[LINK TO PART 1]

Bitcoin’s Great Rotation: Who Bought the Dip and Why It Matters

The Leverage Purge: Why the Market Is Healthier After $8.55B in Pain

The ETF Exodus Decoded: Basis Arbitrage, Not Capitulation

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Michael Marshall

Mike Marshall is Head of Research at Amberdata. He leads pioneering research initiatives at the forefront of blockchain and cryptocurrency analytics. Mike is a seasoned quantitative analyst with a 15-year track record in developing AI-driven trading algorithms and pioneering proprietary cryptocurrency strategies. His...