(Kitco News) - Bitcoin has triggered a "smoke alarm" for the global economy.
With the price hovering around $90,000 after a sharp pullback from October highs, Jack Mallers, CEO of Strike and co-founder of Twenty One Capital, argues this correction is not a structural failure but a necessary "flush" before the next leg up.
In an exclusive interview with Kitco News, Mallers reveals why more than half of the market is currently in the red, predicts a major liquidity pivot on December 1, and explains why his corporate treasury model fundamentally differs from the leverage-heavy approach of competitors like Strategy Inc. (formerly MicroStrategy).
The "50% Underwater" Signal
While Bitcoin remains up significantly year-to-date, recent volatility has been painful for newer entrants. According to Mallers, a massive rotation from long-term holders to new ETF investors has shifted the market's cost basis higher.
"More than 50% of Bitcoin that has been acquired is underwater right now," Mallers told Kitco News. "There's been a massive rotation... lots of early investors are realizing some liquidity."
This rotation explains the heavy sentiment. While long-term holders ("OGs") took profit at the highs, new capital - primarily from spot ETFs - bought near the top. With outflows from spot ETFs reaching approximately $2.8 billion in November, these new institutional buyers are now feeling the pressure.
"If over half of Bitcoin holders are underwater... It's going to feel a lot worse than it is," Mallers said. "But year over year, Bitcoin is still up."
The Liquidity Pivot: Watch December 1
Despite the short-term pain, Mallers remains aggressively bullish on the medium term. He points to a specific date for the market's turnaround: December 1.
Mallers argues the current correction is the market "front-running" a liquidity crunch caused by the Federal Reserve's Quantitative Tightening (QT) program. However, he believes the QT regime is about to end.
"I’m not going to call any Bitcoin bottoms, but QT ends... December 1st," Mallers said. "The Fed has said they're going to have to start expanding the balance sheet."
Quantitative Tightening (QT) is the process by which the Federal Reserve reduces its balance sheet by letting assets like Treasuries mature without reinvesting the proceeds, effectively pulling liquidity out of the financial system. Since 2022, the Fed has reduced its balance sheet from nearly $9 trillion to roughly $7 trillion. Mallers argues that the conclusion of this program marks a return to net liquidity expansion, historically a bullish signal for risk assets and Bitcoin.
He views the current price drop not as a failure of Bitcoin, but as a functioning signal of tight monetary conditions.
"Bitcoin tends to be one of the only accurate smoke alarms for fiat liquidity we have left in the world," he said. "Bitcoin falling from highs right now shows us that [central banks] might have a liquidity crisis before they're forced to [print]."
Strategy Inc. vs. Twenty One Capital: The Treasury War
The interview also highlighted a growing divergence in corporate Bitcoin strategies. While Strategy Inc. (formerly MicroStrategy) has aggressively used convertible debt and preferred stock to acquire Bitcoin, Mallers’ Twenty One Capital is taking a different approach.
Mallers was critical of the perpetual leverage model, specifically referencing Strategy Inc.'s recent issuance of euro-denominated preferred stock (STRE) which carries a fixed dividend and has reportedly traded below par.
"Owing 12% forever on any amount of money... that's a really expensive bill to pay," Mallers said. "Especially if I have to pay it through dilution or through my Bitcoin holdings."
He differentiated his firm’s philosophy, emphasizing cash flow over financial engineering.
"For us, it's always been dubious," Mallers said regarding the leverage-heavy model. "You're effectively adding leverage to the M-NAV... We want to be the Bitcoin company in the capital markets that can explore leverage... but afford it with cash flow."
Mallers also confirmed a major milestone for Twenty One Capital, revealing that a shareholder vote is scheduled for early December to finalize the company’s public listing.
Tether’s "Modern-Day Fort Knox"
Mallers also addressed the aggressive expansion of his partner, Tether, into the commodities sector. Tether has recently finalized deals in the gold royalty space, a move Mallers described as part of a global race to "re-collateralize" the financial system.
"They’re building... a modern-day Fort Knox," Mallers said. "Tether the stable company, not just the stable coin."
He argued that in a world of sovereign debt crises, private companies backed by hard assets like gold and Bitcoin will become the new pillars of trust.
"Is it impossible that the tether dollar is valued more than a US dollar in a future state if the US dollar goes through a serious currency crisis... because Tether has one of the largest holdings of gold and one of the largest holdings of Bitcoin in the world?" Mallers asked.
He positioned this shift as a pragmatic response to a fragile global system.
"If the world isn't going to be magically solved by a bunch of AI wizards in San Francisco... they can provide stability, banking to the world," Mallers said.
Past Bitcoin Drawdowns: Context for the 'Flush'
While a 30% drop feels significant, historical data suggests such corrections are standard during Bitcoin bull markets. In the 2017 cycle, Bitcoin experienced six drawdowns of 30% or more on its way to $20,000. Similarly, the 2020-2021 run saw multiple corrections exceeding 25%. Mallers' "flush" thesis aligns with these historical patterns where leverage is wiped out before the asset resumes its upward trajectory.
Watch the full interview with Jack Mallers above to hear his complete analysis of the market structure, his outlook for 2026, and why he believes the U.S. is "defaulting silently."
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Jeremy Szafron
Jeremy Szafron joins Kitco News as an anchor and producer from Kitco’s Vancouver bureau.
Jeremy is a seasoned journalist with a diverse background covering entertainment, current affairs and finance.
Jeremy began his career in 2006 as a Journalist at CTV (Canada’s largest network), initially engaging audiences as an entertainment reporter before pivoting to business reporting focusing on mining and small-caps. His macro-financial and market trends analysis made him a sought-after commentator on CTV Morning Live and a regular on CTV News Network.
A notable milestone in Jeremy's career was his 2010 Vancouver Olympic Games coverage, highlighting the Olympic community and hosting segments from various Country Houses at the games. Building on this experience, Jeremy developed an online video news program for PressReader, launching them into a new direction. PressReader is a digital newsstand with 8,000 newspaper and magazine editions in 60 languages from more than 120 countries.
In 2012, Jeremy ventured into his own digital media project, creating The Green Scene Podcast, swiftly gaining over 400,000 subscribers and establishing himself as a key voice in the emerging cannabis industry. Following this success, he launched Investor Scene and Initiate Research, news platforms providing exclusive market insights and deal-flow opportunities in mining and Canadian small-caps.
Jeremy has also worked as a market strategist and investor relations consultant with various publicly traded companies in the mining, energy, CPG, and tech industries.
A graduate of Concordia University with a BA in Journalism, Jeremy's academic background laid the foundation for his diverse and dynamic career. Now, as an Anchor at Kitco News, Jeremy will continue to inform a global audience of the latest developments and critical themes in finance and commodities.